Construction spending in U.S. unexpectedly decreased in July

, Daily Business Review

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Construction spending in the U.S. unexpectedly fell in July by the most in six months as government outlays dropped to the lowest level in more than four years and home-improvement projects slumped.
 
The 1.3 percent decrease was the biggest since January and followed a revised 1.6 percent gain in June that was eight times larger than previously reported, Commerce Department figures showed today in Washington. The median projection in a Bloomberg News survey of economists called for a 0.2 percent increase.
 
Even lower interest rates may not be enough to help sustain a rebound in commercial projects and business investment, one of the few bright spots in the world’s largest economy. Declines in government spending and a stalled housing market also will weigh on the industry.
 
“Public construction is likely to have contracted as state and local governments reduced spending and federal stimulus funds dried up,” Aaron Smith, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. “The weakness in the public market is likely to persist.”
 
Estimates of the 48 economists surveyed ranged from a decrease of 0.4 percent to a gain of 1 percent. The Commerce Department revised the June data from a previously reported 0.2 percent gain.
 
The May reading was also revised up to show a 2.5 percent jump rather than the 0.3 percent gain previously estimated, indicating construction spending will be boosted when new data on second-quarter gross domestic product is released at the end of the month. The world’s largest economy expanded at a 1 percent annual pace from April through June after growing at a 0.4 percent rate in the first three months of the year.
 
12-Month Change
 
Construction spending rose 0.1 percent in the 12 months ended in July, today’s report showed.
 
Spending on public construction dropped 2.1 percent in July from the prior month, the biggest decrease so far this year, as state and local government projects declined 1.9 percent. Federal construction spending fell 3.6 percent. Outlays totaled $275 billion, the lowest level since December 2006.
 
Private construction spending decreased 0.9 percent in July, today’s report showed. Homebuilding outlays fell 1.4 percent, reflecting a 2.9 percent drop in spending on home improvements, according to Bloomberg calculations based on the data. Construction of single-family homes was little changed, while spending on multifamily units climbed 1.4 percent.
 
Housing starts in the U.S. slid 1.5 percent in July, the Commerce Department reported Aug. 16. Building permits, a sign of future construction, also decreased.
 
Wide-Ranging Implications
 
“The low level of construction has implications not only for builders but for providers of a wide range of goods and services related to housing and homebuilding,” Federal Reserve Chairman Ben S. Bernanke said in a speech last week.
 
Falling home prices are hurting consumer confidence and demand for real estate. The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent in June from a year earlier, the group reported on Aug. 30.
 
Private non-residential projects decreased 0.4 percent. A 6 percent drop in spending on factories accounted for the overall decrease, the report showed.
 
Some producers of construction materials and builders may gain from rebuilding efforts after tropical storm Irene hit the East Coast of the U.S. last month. PulteGroup Inc., the nation’s biggest homebuilder, and Alcoa Inc., the world’s second-largest aluminum producer, both rose after the storm damaged properties from North Carolina to Maine.
 

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