Construction Spending Increases 1.1% in August

Construction spending rose a solid 1.1% in August as homes, apartment building and shopping center developments showed strength, the government reported Tuesday.

The August increase left construction spending at a seasonally adjusted annual rate of $344 billion, 7% higher than a year ago.

Analysts said the increase in August had to be viewed along with a sharp downward revision in building activity for July. Construction spending had originally been reported as increasing by 1.2% in July; however, the government revised that figure downward Tuesday to show a 1% decline.

“Construction investment has been rather disappointing in the last few quarters, and it looks like that is going to continue in the third quarter,” said David Wyss, an economist with Data Resources.

He predicted that sluggishness in construction spending would shave about one-fourth of a percentage point off overall economic growth in the just-completed July-September quarter.

Still, Wyss said that overall economic activity will probably show a rebound to an annual rate of about 3.25% in the third quarter, up from the government’s preliminary “flash” estimate last week of 2.8% growth during the third quarter.

The economy grew at a weak 1.1% rate in the first six months of the year.

Wyss predicted that construction spending will strengthen in coming months based on an upturn in contracts for new plants and equipment and a jump in housing starts.

The August gains came in both residential and business construction.

Residential construction rose 2% to a seasonally adjusted annual figure of $147.2 billion, while non-residential construction was up 2% to a rate of $87.7 billion.

The residential increase came from a 2% advance in apartment construction, which totaled $30.1 billion, and a 1% gain in single-family homes, which reached a level of $84.6 billion.

The biggest gains in non-residential construction were a 16% rise in the small category of churches and other religious buildings, which hit an annual rate of $2.9 billion in August, and a 6% increase to $28.3 billion in spending for shopping centers and other commercial structures.

Construction spending for industrial buildings was unchanged in August at $15.4 billion, while office building construction dropped 1% to $31.1 billion but still remained 18% above the August, 1984, level.