Construction Spending Hits 10-Month High

Construction spending hit the highest point in 10 months in November, the government reported Tuesday, and an analyst attributed the jump to lower interest rates and to rebuilding after Hurricane Hugo and the Bay Area Quake.

“I think a reasonable argument can be made that some of the government spending was disaster related,” said David Berson, chief economist for the Federal National Mortgage Corp.

A 7% gain in government spending helped push total outlays up 1.5% to a seasonally adjusted annual rate of $421.7 billion, the Commerce Department reported. It was the highest level since last January’s $423 billion.

Hurricane Hugo hit the South Carolina coast Sept. 21, and the earthquake struck Northern California on Oct. 17.

Berson said the government sector had been growing strongly since July, so not all of the advance should be attributed to the disasters. Government spending totaled $91.4 billion at an annual rate.

Residential spending increased 0.6%, to $194.4 billion, at an annual rate, helped by a 1.5% gain in single-family housing and a 4.7% jump in apartment building.

“What we’re seeing here is a response by builders to lower mortgage rates and increased sales,” Berson said. “We’re likely to see that edging up for the next several months, but I don’t think we’re going to see any surges because builders will remain very cautious.”

The Federal Reserve began letting short-term interest rates fall gradually in June as inflation moderated and the economy showed signs of sluggishness. The central bank had propped up the rates initially to stem inflationary pressures.

By the end of November, fixed-rate mortgage rates were 9.74%, according to a survey by the Federal Home Loan Mortgage Corp. They had peaked at 11.22% in March.