Spending on construction up in June

Source : Business Times – 4 Aug 2009

Spending on US construction projects unexpectedly rose in June, led by an improvement in residential real estate and gains in government projects.

The 0.3 per cent increase to US$965.7 billion followed a revised 0.8 per cent drop the prior month, according to data from the Commerce Department yesterday.

Private residential projects rose for the second time in three months and spending by the Federal government increased by the most this year.

Spending on infrastructure projects is likely to keep rising in coming months as state and local governments use funds from the US$787 billion fiscal stimulus package. In addition, lower home prices and mortgage rates are beginning to boost sales, spurring residential construction and bringing an end to the worst housing slump in seven decades.

‘Residential activity appears to have hit bottom,’ Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York, said. The data are ’somewhat encouraging’.

Total construction spending was forecast to drop 0.5 per cent after an originally reported 0.9 per cent decrease the prior month, according to the median estimate of 50 economists in a Bloomberg News survey. Estimates ranged from a decline of 2 per cent to a one per cent gain.

A separate report yesterday showed manufacturing in the US shrank in July at the slowest pace since August of 2008, another sign the factory industry is moving closer to stabilisation as the recession eases.

The Institute for Supply Management’s factory gauge rose to 48.9 from 44.8 in June, according to the group. Readings below 50 signal contraction.

Private residential construction spending increased 0.5 per cent after falling 3.1 per cent the prior month.

Total non-residential construction, including public projects, rose 0.1 per cent, led by a 0.9 per cent gain in government spending.

Residential construction is showing signs of bottoming. Housing starts unexpectedly rose in June as construction of single-family dwellings jumped by the most since 2004, Commerce figures last month showed.

The 3.6 per cent increase brought starts to the highest level in seven months.