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Construction spending rises 0.7 percent in October

WASHINGTON (AP) — Construction spending rose for the second straight month in October, pushed up by growth in residential building and government projects.

Construction spending increased 0.7 percent in October, matching the September gain, the Commerce Department reported Wednesday. It marked the first time that construction activity has risen for two straight months since March and April. Spending rose in October to a seasonally adjusted annual rate of $802.3 billion.

Even with the gains, construction spending is 33.7 percent below the peak hit in March 2006.

The increase in October came as a surprise to many economists who had been expecting a small decline.

Much of the strength came from a 2.5 percent rise in private residential construction. It was the biggest one-month gain since April and pushed activity in this category to a seasonally adjusted annual rate of $229.6 billion.

Kenneth Simonson, chief economist for The Associated General Contractors of America, cautioned that the October report was overstating the strength in residential activity. He said that single-family construction actually dropped during the month but that this was offset by a big jump in spending on home improvements.

"Many people are likely to see only the overall increase in residential and equate it with new single-family, which is the opposite of the actual estimate," he said in a research note.

Spending on home improvements jumped 6.2 percent, offsetting a 1.2 percent drop in new single-family construction.

Spending on residential projects was up 0.6 percent in September after four straight monthly declines. Those came after a popular government tax credit for homebuyers ended in April.

Spending on nonresidential construction projects dropped 0.7 percent in October to a seasonally adjusted annual rate of $252.2 billion. Declines in construction of office buildings, shopping centers and hotels led to the drop.

The deep recession which ended in 2009 has cut demand for commercial projects. Builders have had trouble obtaining financing for projects as banks tighten credit standards.

Spending on government projects rose 0.4 percent in October to a seasonally adjusted annual rate of $320.5 billion. Federal building increasing to 0.9 percent to an annual rate of $33 billion, an all-time high on records that go back to 1992.

Spending on state and local projects rose 0.4 percent to a rate of $287.5 billion.
   
Copyright 2010 The Associated Press.

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