Signs of an Anemic Recovery

B uilders increased construction spending in May for the fifth straight month, the Commerce Department said, but analysts said the 0.2% rise was anemic compared to gains after previous recessions. Meanwhile, U.S. manufacturing growth slowed sharply in June, according to a closely watched survey by National Assn. of Purchasing Management.

* Good signs: New doubts about the stamina of the recovery raised from the purchasing executives’ survey intensified speculation that the Federal Reserve is likely to nudge interest rates lower soon to keep the economy from stumbling. The stock and bond markets rallied in response.

* Bad signs: While government spending on construction increased, spending on both residential and non-residential buildings fell. High vacancy rates in rental properties in much of the country has slowed multifamily construction. An overbuilt situation in the non-residential area, particularly in office buildings, contributed to the decline there.

* Key factors: The purchasing managers’ monthly index of business activity dropped to 52.8% last month from 56.3% in May. A reading above 50% indicates that the manufacturing economy is expanding, while a reading below 50% indicates a contraction. While the June reading marked the fifth straight month in excess of 50%, it was the slowing rate of growth that aroused concern. Spending on residential, non-residential and government construction projects totaled $423.2 billion at a seasonally adjusted annual rate, up from $422.4 billion in April.

Construction Spending

Billions of dollars, seasonally adjusted

May, ‘92: 423.2

April, ‘92: 422.4

May, ‘91: 396.0

Source: Commerce Department