New Construction Spending Up 1.1% in May, U.S. Says

Spending on new construction rose 1.1% in May but the bulk of the increase came in commercial building as spending for private housing slumped for the third month, the Commerce Department said Friday.

Spending for new construction rose 1.1% to a seasonally adjusted annual $407.1 billion, after a 0.2% decline in April, the department’s Census Bureau said.

Some analysts had expected a continuation of April’s figures or no growth at all.

Dick Peach, senior economist for the Mortgage Bankers Assn., said the weakness in residential construction was no surprise.

‘Byproduct of Spending Boom’

But he said the increases in industrial and office construction “suggest we’re going to have non-residential construction acting as a stimulus to overall economic growth in the second quarter.”

“Industrial construction is a byproduct of the capital spending boom that’s occurring,” Peach said. Because of steadily rising exports “a lot of firms have had to expand their capacity, most in equipment but some in industrial structures as well.”

As for the jump in office construction, Peach said that suggests the office space glut in some areas, notably the depressed economies of the Southwest, may have “bottomed out and are not dragging down the total.”

During the first five months of the year, spending on new construction projects totaled $147.6 billion, 1.5% more than during the same period of 1987, the bureau said.

Spending for new residential construction was down 1% in May from April to a seasonally adjusted annual $193.4 billion. The bulk of the drop came in spending for new single-family houses. Spending for new apartment buildings rose slightly, the department said.

The dip in single-family housing construction mirrors other reports this month showing the private house in the suburbs is both rising in price and becoming less popular with builders and buyers.

Spending for non-residential projects rose 4.3% in May to a seasonally adjusted annual $98.9 billion led by 0.8% jumps in spending on new offices and industrial projects, the report said.

In the public sector, spending for new construction was down 0.2% from April to a seasonally adjusted annual $78.9 billion, the department said.

Public spending on new hospitals jumped sharply, but spending for public industrial and highway projects dropped.