Construction spending rose a modest 0.4% in January as work on non-residential buildings such as factories and offices offset a downturn in activity on government projects, the government said Wednesday.
Building activity rose to a seasonally adjusted annual rate of $424 billion in January, the Commerce Department said. January’s advance followed a 2.1% increase in December and a 1.3% jump in November.
January’s strength in construction came in the non-residential sector, where building activity rose 4.3% to a seasonally adjusted annual rate of $99.1 billion.
Hotel and motel building was up 8.7% for the month, factory construction rose 7.3%, construction of office buildings was up 2.2% and work on religious buildings rose 11.1%.
Analysts said activity in the industrial sector has been bolstered as manufacturers expand capacity to meet rising demand generated by strong export sales, although the pace of exports slowed during the last quarter of 1988.
“We are moving into a phase in the investment cycle where we are doing real capacity additions to our industrial base,” said William Dunkelberg, dean of the School of Business and Management at Temple University. “There’s an investment boom that’s still on in the country.”
Residential construction rose 1.1% to a seasonally adjusted $204.6 billion, reflecting an unchanged pace of building activity on single-family homes and a 3.7% gain in apartment construction.
Apartment construction generally has been sluggish recently, held back by high vacancy rates and reduced tax incentives for investment in such projects. The category had declined 0.9% in December.
Michael Sumichrast, an economist and editor of a construction newsletter, said building activity has fared surprisingly well overall in recent months considering rising mortgage interest rates.
But while non-residential construction is likely to remain strong in 1989, the rising interest rates “will make it virtually certain that housing will start declining fairly rapidly” this year, Sumichrast said.
Fixed-rate mortgages were averaging 10.78% last week, compared to 9.87% a year earlier, according to a survey by the Federal Home Loan Mortgage Corp.
Government construction declined 4.9% to a seasonally adjusted $81.7 billion in January. The largest category for government construction, highways and streets, was down 10%.