Construction Spending Rises 0.3% in ’87

Construction spending, depressed by weakness in apartment and office building, edged up a slight 0.3% in 1987 for the worst showing in five years, the government said Monday.

The Commerce Department reported that construction spending for all of 1987 totaled $348.98 billion, just $1.15 billion more than in 1986, after taking inflation into account.

This 0.3% advance followed a 7.1% increase in 1986 and was the poorest performance for the industry since spending fell 8% in the recession year of 1982.

Analysts said further weakness should be expected this year because of continued high vacancy rates for apartments and office buildings, two sectors where widespread overbuilding was fueled by tax benefits that were reduced by the 1986 tax law.

“Office buildings and rental housing are no longer such great tax shelters and people just aren’t building them,” said David Wyss, an economist with Data Resources Inc., a Lexington, Mass., forecasting firm.

Wyss said construction spending will be a drag on overall economic growth this year, even though he was looking for some rebound in spending on new factories due to the boom in U.S. export sales.

With the office vacancy rate at 17% and the apartment vacancy rate at 5.5% nationally, he said, those two areas will see further drops in spending.

In 1987, apartment construction fell 20%, while office building was down 12.6%. the Commerce Department said.

Total residential construction rose 2.9% to $173.5 billion last year, as an 8.6% increase in single-family construction lessened the impact of the decline in apartment building. Analysts said they were looking for further gains in single-family construction this year if mortgage rates stabilize. where they are, at just above 10% for a fixed-rate loan.

Non-residential construction fell 5.9% to $75.14 billion last year, with weakness in industrial, commercial and hotel building as well as the big drop in office construction.

Government construction spending rose 3.3% to $66.42 billion even though the biggest category, highway construction, was essentially unchanged at $20.73 billion.

In December, construction spending edged down 0.4% to an annual rate of $409.7 billion, before adjusting for inflation. This followed a 1.9% November increase.