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Construction Spending Rises in November

Associated Press

Construction spending climbed 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 Tuesday.

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.

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Vacancy Rates Cited

Apartment construction decreased 1.9%. 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 likely will dampen growth in single-family housing in 1989, said John Savacool, an economist with WEFA Group, a Bala-Cynwyd, Pa., forecasting firm. He said recent increases in single-family construction “aren’t going to stick.”

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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.

There was a 1.3% increase in spending on factories and other industrial projects, and Savacool said that was a result of continued strong export markets. While companies first increase production by investing in new equipment, “eventually you have to build some new structures to put additional equipment in,” he said. “It’s finally starting to show up.”


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