March Construction Spending Shows Surprise Gain, Boosted by Public Investment

Aided by a 2.3% surge in government spending, U.S. construction spending unexpectedly rose 0.2% in March -- the index's first rise in five months, the U.S. Commerce Department announced Monday.

In the past 12 months, construction spending has declined 12.3% to a seasonally adjusted annual rate of $966.7 billion. Although that's an uncomfortably large decline, it's still better than the 12.4% year-over-year drop recorded at the end of December.

Economists surveyed by Bloomberg News had expected March construction spending to fall 0.3%, after a revised 2.1% drop in February, larger than the previously released 1.3% decline. The steep February drop likely reflects the impact of the severe winter weather along the East Coast. The index fell 1.4% in January.

Public Education, Highway Spending Rise

Government spending in March pushed the index higher, with state and local expenditures jumping 2.3% to a $269.4 billion annual rate. Public education construction rose 2.2% to $75.9 billion, and highway construction increased 1.5% to $78.1 billion. However, private construction declined 0.9% to $550.8 billion, with residential construction falling 1.1% to $251.8 billion and nonresidential construction decreasing 0.7% to $299 billion.

Essentially, the March report shows a construction sector boosted by public spending. Without government projects, the downtrend in private residential and nonresidential spending continued in March -- a trend that's likely to continue until the overbuilding in private residential dwellings created during the housing bubble gets absorbed.

Economists follow the Commerce Department's construction data statistic because it provides the most comprehensive survey of both private (residential, commercial) and public sector building activity.

Separately, real consumer spending (adjusted for inflation) rose 0.5% in March to a record high, the U.S. Commerce Department announced Monday. Also real, after-tax incomes rose 0.2% in March. However, the U.S. savings rate fell to 2.7%, down from 3.0% in February.

The personal consumption expenditure index increased 0.1%, with the PCE core rate also rising 1.1%. That puts inflation at 2% in the past 12 months, with the core rate up just 1.3% -- well within the Fed's "comfort zone" for inflation.