Construction Outlays Up Only 1.1% for 1988

Construction spending, depressed by a downturn in work on apartment buildings, rose just 1.1% last year, the weakest showing since the recession year of 1982, the government reported Wednesday.

The year ended on a strong note, however, as construction spending rose 2.5% in December, the Commerce Department reported.

Spending for all of 1988 totaled $403.4 billion, a slim increase from $398.9 billion in the previous year. But after taking into account inflation, spending actually was down 0.4% from 1987.

Construction spending had been down 5.2% in 1982, or 8.1% after adjusting for inflation.

Samuel D. Kahan, chief economist for Kleinwort Benson Government Securities Inc. in Chicago, said that although construction strength increased at the end of 1988 because of strong growth in personal income, spending this year should be moderate as interest rates rise.

‘Banner Year’ Unlikely

“If interest rates do continue rising, that should act as a squeeze on overall construction spending,” he said. “I don’t think it’s going to be a banner year.”

Last year’s spending pace was depressed by slow activity on apartments, a category that suffered from high vacancy rates and was still feeling the impact of the 1986 tax overhaul that curtailed tax breaks for construction investments.

In inflation-adjusted dollars, apartment construction was down 13.9% to $19.3 billion last year, and work on single-family homes rose 2.9% to $103.6 billion. Non-residential construction spending was down a slight 0.1% to $78.1 billion, and spending on government projects was down 0.4% to $65.8 billion after adjusting for inflation.

High mortgage interest rates have restrained construction activity in most sectors. Fixed-rate home mortgages averaged 10.60% last week, up from 10.16% a year earlier, the Federal National Mortgage Assn. reported.

Strong Finish to 1988

Economist James Annable of First National Bank of Chicago said that, although construction spending is likely to slacken later this year, the finish of 1988 was stronger than expected.

“Construction has stayed surprisingly strong, given interest rates and the upward pressure on interest rates,” he said. “They haven’t had quite as much bite as history might have told us.”

Building activity rose to a seasonally adjusted annual rate of $422.7 billion in December, the fourth straight monthly rise. The 2.5% increase was the best since a 2.8% rise last March.

For the month, residential construction rose 0.3% to a seasonally adjusted annual rate of $220.9 billion, reflecting a 1.1% gain in single-family home building. Apartment construction dropped 2.3%.

Non-residential construction rose 3.4% to an annual rate of $96.4 billion. Spending on government projects was up 7.8% to a seasonally adjusted annual rate of $86.8 billion.

The monthly figures are not adjusted for inflation.