Construction Spending Edges Higher, But Misses Forecasts

By Lucia Mutikani

WASHINGTON -- U.S. construction spending rose less than expected in May, which could prompt a further downgrading of second-quarter economic growth estimates.

Construction spending edged up 0.1 percent to an annual rate of $956.1 billion, the Commerce Department said Tuesday. However, April's construction spending was revised up to show a 0.8 percent rise, taking some of the sting out of the report.

Economists polled by Reuters had expected construction spending to advance 0.5 percent after a previously reported 0.2 percent gain.

The data was the latest to suggest the economy's rebound from a brutally cold winter could fall short of expectations. Growth contracted at a 2.9 percent annual pace in the first quarter, also weighed down by a slow pace of inventory accumulation by businesses.

Economists last week slashed their second-quarter growth estimates after weak consumer spending in May. Growth forecasts are now running as high as a 3.5 percent pace and as low as a 2.1 percent rate.

%VIRTUAL-WSSCourseInline-750%Construction spending in May was held back by a 0.3 percent decline in private construction projects, which offset a 1 percent rise in public construction outlays. Private construction is the largest portion of construction spending.

Private residential construction tumbled 1.5 percent, reflecting weak housing starts.

A run-up in mortgage rates has stymied the housing market recovery. Investment in home building and nonresidential structures such as factories and gas pipelines contracted in the first three months of this year for a second straight quarter.

Spending by the federal government dropped 8.9 percent, the largest fall since December 2010. State and local government projects increased a solid 2 percent.