Highway Building Helps Send Construction Spending Up 1%

From Times Wire Services

Construction spending, bolstered by a big jump in highway building, rose 1% in January for the biggest increase in nine months, the government reported Monday.

The Commerce Department said building during the month reached an annual rate of $378.5 billion, up $3.6 billion from the December level. The figures are expressed as seasonally adjusted annual rates, meaning they show what an entire year would be like if every month was the same as the one studied and seasonal variations were removed.

It was the first increase since October and the biggest advance since a 1.6% rise last April. Spending had fallen 0.9% in December and 1.5% in November.

The strength in January was concentrated in a 5.6% rise in government building projects, which pushed the public construction total to an annual rate of $75.2 billion. The increase was led by a 25.9% surge in spending on highway construction, the biggest government category, as a new infusion of federal highway funds made its way into state construction projects.

Analysts were basically unimpressed with the overall January gain, contending that it reflected temporary factors rather than signaling long-term strength in the building industry.

"We are looking for single-family construction to be strong, but tax reform is clearly going to kill commercial structures, office buildings and rental housing," said David Wyss, an economist with Data Resources Inc. of Lexington, Mass.

Analysts have contended that the loss of real estate tax breaks in the new tax law, coupled with high vacancy rates in rental apartments and office buildings, would depress those sectors all year long.

In January, spending for residential construction rose 1.2% to an annual rate of $180.7 billion, with construction of single-family homes rising 0.6% and construction of multi-family units up a sharp 8.3%.

Wyss said the rise in multi-family building in January was probably a carry-over from high activity in December, when builders were rushing to complete new apartment facilities and take occupancy to qualify for faster depreciation allowed under the old tax law.

Non-residential construction dropped 4.2% in January to an annual rate of $84.7 billion as all major categories suffered declines. Hotel construction fell 8%; shopping center activity was down 6%; factory construction fell 4.7%, and office-building activity declined 3.1%.

The main reason for optimism about single-family construction is a belief that mortgage rates, currently at an eight-year low of 9%, will not increase this year.

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