Spending for Construction Up a Steep 1.9%

Spending on new construction rose a sharp 1.9% in September, the biggest gain in six months, the government reported Friday.

The September gain left construction spending at a seasonally adjusted annual rate of $350.4 billion, 9% higher than a year ago.

The increase followed a 0.3% drop in August and was the biggest advance since a 2.5% rise in April.

Private construction rose 2% during the month to a new annual rate of $286.4 billion. Government construction remained essentially unchanged at an annual rate of $64 billion.

In private building, residential construction gained 2% to a rate of $149.9 billion. While construction of single-family residences remained essentially unchanged, apartment construction rose 2%.

Non-residential construction posted an even larger 5% increase to an annual rate of $92.4 billion. Construction of office buildings and factories both rose by 6% while construction of shopping centers and other commercial buildings was up 4%.

The rise in spending for office buildings put this category a giant 22% above where it was a year ago. However, analysts said these increases could not continue, given the large amount of vacant office space around the country.

“Some people are saying that we will have a 45% drop in office building in the next year,” said Michael Sumichrast, chief economist for the National Assn. of Home Builders. “There is clearly overbuilding in all parts of the country, with vacancy rates in many cities over 20%.”

Sumichrast said residential construction should remain strong at least through the rest of this year because of projects already under way.

In the government category, spending on highways and streets was down 2% from August, while construction of water systems fell an even larger 13%.

During the first nine months of the year, construction spending totaled $253.8 billion, 9.4% higher than the same period in 1984.