Construction Outlays Edge Up in February

Construction spending was nearly flat in February as a small increase in government projects was offset by slower work on housing and other non-government buildings, the Commerce Department reported Monday.

Spending for new construction took place at a seasonally adjusted annual rate of $423 billion, inching up from $422.8 billion during the previous month. Construction spending had risen 0.4% in January.

February’s performance was the weakest since construction spending declined 0.2% last August. Analysts said rising interest rates and caution about the economic outlook were holding back building activity.

The Federal Reserve Board for a year has been pushing interest rates upward in an effort to slow economic growth and restrain inflation. Recent government reports on the economy’s performance in February have suggested that growth may be slowing as the expansion extends into its seventh year.

Economist John Savacool of the WEFA Group in Bala-Cynwyd, Pa., said people don’t expect the economic recovery to continue indefinitely and are becoming more cautious about construction projects in anticipation of the next downturn.

“Most people say: ‘There’s a recession coming. We don’t know when, but we’ve got a feeling there’s going to be one,’ ” Savacool said. “I wouldn’t expect too much of any substantial construction activity until we get into the early part of the new year.”

In February, spending on residential construction declined 0.2% to a seasonally adjusted annual rate of $203.4 billion. The pace of building activity on single-family homes was unchanged, while spending on apartment construction rose 5.8% and home improvements decreased.

Housing is one of the most interest rate-sensitive parts of the economy, although the availability of adjustable-rate mortgages has helped to ease the impact of rising rates.

Fixed-rate mortgages last week were averaging 11.19%, compared to 9.87% a year earlier. Rates on one-year adjustable-rate mortgages also have risen sharply, with lenders asking an average initial rate of 9.31% last week, up from 7.53% a year earlier.

Non-residential construction declined 0.3% in February to a seasonally adjusted annual rate of $97.8 billion. Spending on industrial projects such as factories was down 1.9%, hotel and motel spending was down 4.2% and work on offices rose 1.8%.

Spending on government construction, meanwhile, rose 0.7% to a seasonally adjusted annual rate of $82.7 billion. The largest category of government construction, highways and streets, was down 3.3%.

Most other government categories posted gains or were unchanged, with spending on construction of educational facilities rising 4.8%.