THE ECONOMY : Public Projects Give Boost to Construction Spending

From Associated Press

Housing construction fell for the fourth straight month in May, but public building projects led overall construction spending to a 1.3% increase, the government reported Monday.

The Commerce Department said total private and public construction came to a seasonally adjusted annual rate of $421.3 billion in May after falling 0.8% in April. May’s spending level was 3.3% above the pace of May, 1988.

But private construction remained flat at $335.1 billion at an annual rate following a 1.6% drop in April. Residential building was off 1.6% from April, including a 2.5% drop in new housing units to an annual rate of $138.6 billion.

The decline in new housing represented the fourth consecutive drop. It included a 1.5% decrease in single-family homes to an annual rate of $115 billion and a 6.7% drop in multifamily units to $23.6 billion.


Non-Residential Higher

Analysts believe that the pace of residential building will pick up later this year as mortgage interest rates decline. Fixed rates peaked in March at an average of 11.22% and fell to 10.07% by last week, according to a survey by the Federal Home Loan Mortgage Corp.

Rates had been driven up by the Federal Reserve as it tightened credit in an attempt to halt inflation.

“I think we’ll see private construction numbers moving up again, probably by the end of the summer” as rates continue to fall, said David Berson, chief economist for the Federal National Mortgage Assn.


Non-residential construction spending rose 2.6% to an annual rate of $98.7 billion, the department reported, and Berson said he expects that trend to continue as industry expands in anticipation of rising exports.

‘One or Two Big Projects’

“We would expect some improvement as firms try to meet export demands,” he said. “Some of that will necessitate increased spending on new plants, new industrial buildings.”

Public construction was up 6.7% in May to an annual rate of $86.2 billion, despite a drop in the highway and street spending from $27.9 billion to $27.4 billion. The conservation and development category more than doubled from $3 billion to $6.6 billion.


“That was probably due to one or two big construction projects that came on line and will go back down next month,” Berson said.

Berson said he expects overall public construction to remain flat for the remainder of the year because of federal budget constraints.

CONSTRUCTION SPENDING Billions of dollars, seasonally adjusted May, 1989: 421.3 April, 1989: 415.9 May, 1988: 408.0 Source: Commerce Department