Construction Spending Up 0.8% : Figure Shows Increase in Homes, Government Projects

Construction spending rose 0.8% in November, reflecting an increase in work on homes and government projects that more than offset slower building of offices and shopping malls, the Commerce Department reported today.

November’s seasonally adjusted construction spending--at an annual rate of $411.1 billion--marked the third consecutive monthly increase. Revised figures put spending at $407.8 billion in October, $406.9 billion in September and $403.2 billion in August.

For the first 11 months of 1988, construction spending was up a lackluster 1% over the same period of 1987. That figure was not adjusted for increased construction costs, which were up 1.5%.

The November spending increase was largely driven by an increase in spending on housing construction, which was up 0.7% to $200.4 billion. The housing figure included a 2.3% rise in spending on single-family homes.

There was a 1.9% decrease in apartment construction. Economists said that reflected aftereffects of the 1986 federal tax overhaul, which made such projects less attractive, and high apartment vacancy rates, particularly in the South.

“Until we see vacancy rates decline, we’re not going to see a whole heck of a lot of construction in those markets,” said Mark Obrinsky of the U.S. League of Savings Institutions.

Rising mortgage interest rates probably will dampen growth in single-family housing in 1989, said John Savacool, an economist with the Wefa Group, a Bala Cynwyd, Pa., forecasting firm.

However, Obrinsky predicted another reasonably strong year for single-family homes, though not equal to 1988. He said mortgage rates could drop in the second half of the year and “take some sting” out of expected increases early in the year.