Home Sector Paces Outlays in Construction

Construction spending climbed 0.6% in September as strength in housing and a rebound in government building offset weakness in non-residential construction, the Commerce Department reported Tuesday.

Spending for new construction rose to a seasonally adjusted annual rate of $403.4 billion in September, after a 0.2% decline in August. Construction spending had risen 1.5% in July.

Even with the latest increase, construction activity has been sluggish this year. The September level of activity is actually 0.5% below the level of a year ago.

Weaknesses in apartment, office and shopping center construction have depressed building activity, although this has been offset somewhat by continued demand for single-family homes. Analysts said they expect this pattern to continue through next year.

Office Construction Down

“I think non-residential construction will soften further,” said David Wyss, an economist with Data Resources Inc. “We still believe that commercial and office buildings are overbuilt and there won’t be a lot of oil drilling activity with oil prices as low as they are.”

For September, residential construction rose 0.7% to a seasonally adjusted $195.3 billion. That reflected a 1% increase in construction of single-family homes and a 0.9% rise in construction of multifamily units. Even with the latest increase, multifamily construction is 9.1% below the year-ago level.

Non-residential construction fell by 0.5% during the month, dropping to an annual rate of $91.7 billion. Factory construction was up 0.8% in September but is still 15% below the level of a year ago.

Office construction dropped by 2.8% in September, and the building activity for hotels and shopping centers remained unchanged from August.

Government construction climbed 1.8% to an annual rate of $78.2 billion, reflecting a rebound after a 3.2% drop in August. The increase came from higher spending for schools, housing redevelopment and sewers.

Highway spending, the largest government category, was unchanged in September at $23.6 billion, 2.2% higher than a year ago.