Stimulus Lifts Construction Spending Unexpectedly in August

Stimulus Lifts Construction Spending Unexpectedly in August
Stimulus Lifts Construction Spending Unexpectedly in August

One month doesn't make a trend, but builders in the beleaguered U.S. construction sector will take any good news they can get, and in August they received some: an unexpected 0.4% increase in construction spending, led by government-funded projects.

Economists surveyed by Bloomberg had expected construction spending to fall 0.4% in August.

However, the gain was tempered somewhat by a revised 1.4% decline in July construction spending, worse than the previously-released 1% drop for the month. Construction spending was essentially unchanged in June, and fell 3% in May. On a year-over-year basis, construction spending totaled a seasonally-adjusted annual rate of $811.8 billion, or down 10% from in August 2009. However, that's a slight improvement from the 10.7% year-over-year decline recorded in July.

Government Spending Boosts Construction Work

As previously noted, all of August's construction activity gain occurred in the public sector. Public construction spending, which includes stimulus-backed infrastructure projects, rose 2.5% in August to a seasonally-adjusted annual rate of $313.6 billion. In that category, highway construction jumped 5%.

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Meanwhile, private construction declined 0.9% in August to a seasonally-adjusted annual rate of $498.2 billion. Private residential construction, which includes single-family homes, dipped 0.3% to an annual rate of $238.5 billion. Private nonresidential construction, which includes shopping malls and office buildings, declined 1.4% to an annual rate of $259.7 billion.

Economists follow the Commerce Department's construction spending report because it provides the most comprehensive survey of both public and private sector building activity.

A Hint of the End of Construction's Contraction

August's construction report is a qualified positive for the sector and for the economy overall, especially considering recent history. The construction sector has been weighed down by the worst residential housing construction slump since the Great Depression, and by an excess of commercial space. Hence, any positive month -- whether it involves public sector funds or private investment -- is a small but welcome victory for builders.

True, one good month does not mean the construction contraction is over -- if private activity doesn't increase in the months ahead as stimulus dollars wane, the sector will shrink further. But August's data does hint that the period of large, monthly construction spending declines may be ending -- something that would represent a real ray of light on the horizon for the U.S. economic expansion.