Spending for Construction Up 1.2% in July : Economists Point to Drop in Interest Rates

Construction spending climbed by a moderate 1.2% in July, led by sizable gains in new office buildings, government projects and some residential housing, the Commerce Department said Tuesday.

The July increase brought construction spending to a seasonally adjusted annual rate of $349.5 billion, following a 0.6% decline in June, the report said.

The June dip had originally been reported as a 0.7% gain. The monthly figures are subject to revisions as more accurate data become available.

Private Building Rises

The July figures showed a 1% increase in private construction over June, after a 1.2% decline the month before and a 2% increase in government construction, which has been climbing slowly but steadily throughout the year.

Economists suggested that the latest figures showed that declining interest rates, which have fueled the recent increases in overall construction activity, are beginning to have a more direct effect on housing and other private construction.

“Maybe we’re beginning to see some bounce-back,” said David Wyss, chief economist with Data Resources of Lexington, Mass. “The figures show there is strength in the construction sector.”

Construction of duplexes and larger apartments showed a strong 5.4% increase in July, following a 3.5% climb in June. And money spent on construction of new single-family homes increased by 0.4% in July, following declines in May and June.

Residential Building Up 1.7%

Overall, construction on new residential buildings increased 1.7% in July.

Construction of non-residential buildings increased 0.9%, with new office building construction increasing by 3.5%--a figure that economists said was puzzling in light of the 17% national vacancy rate in office buildings.

Construction of industrial plants increased 2% after declining a sharp 7.3% the month before. And construction of shopping centers and other commercial buildings dipped 2.6% in July, following an even larger 5.3% drop in June.

Overall, new construction was 9.5% above its level a year ago. During the past year, higher overall construction activity offset a general decline of about 3% in new housing, the government said.

The largest increase in government construction was a 16.1% climb in construction of “water- supply facilities,” while new sewer system construction also registered a strong 5.8% increase.