Construction Spending Posts Large Gain In October

WASHINGTON (AP) — Newly built homes and schools boosted U.S. construction spending in October to the highest level since May.

The Commerce Department said Tuesday that construction spending rose 1.1 percent in October, after having slipped 0.1 percent in September.

The increase is higher than expected for October as both private and public outlays increased, which could ease concerns of a sharp slowdown in fourth-quarter economic growth. The upbeat construction data suggests some momentum in the economy early in the fourth quarter. Weak durable goods orders data has raised concerns of a sharp moderation in the pace of growth in the final three months of the year.

Fueling the gains in October was a 1.8 percent increase in spending on single-family houses. A similar boost in building schools led to a 2.3 percent increase in government construction spending. Meanwhile, private construction of power plants and commercial centers slipped in October.

Building activity has been slowly improving for much of 2014, although its contribution to broader economic growth has been relatively modest. Homebuilding has crept upward at an extremely lackluster pace, limited by meager wage gains that have barely outpaced inflation. That has cut into the amount of money that people have to spend on homes or rent.

“The October rebound does not undo the damage” caused by the marked slowdown in construction spending since the start of 2014, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

In fact, October’s solid growth in homebuilding underlines that sector’s weakness.

Over the past 12 months, private residential construction spending has risen just 1.9 percent to an annualized rate of $353.8 billion. That lags total construction spending, which has climbed 3.3 percent from a year ago to $971 billion.

New-home sales have risen only 1 percent, according to a separate Commerce Department report. Builders are largely targeting wealthier buyers. That can boost profits but often means less construction to fuel economic growth. The median price of a new home has risen 15.4 percent in the past 12 months to $305,000, a pace that’s more than double the average annual price increase for sales of existing homes tracked by the National Association of Realtors.

Still, builders are hiring at a slightly faster clip than last year. Construction companies are adding an average of 14,000 workers a month so far this year, compared with a monthly average of 11,083 in 2013. The challenge is that stronger hiring and economic growth during 2014 has yet to translate into the wage growth that could further propel construction spending and hiring.

Architectural firms are reporting greater demand for their services, however, a sign that construction spending should improve in the months ahead.

The American Institute of Architects said that its October billings index was 53.7. Any score above 50 indicates that billings increased. A breakdown of the index suggests that municipal governments and nonprofits are spending more on architectural designs, after having kept their spending in check during the more than five-year recovery from the Great Recession.


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