Construction spending in the U.S. unexpectedly increased in June, boosted by gain in government programs that made up for
declines in private residential and commercial projects.
The 0.1 percent increase in outlays followed a revised 1 percent drop in May that was larger than previously estimated, figures from the Commerce Department showed today in Washington. Spending by federal agencies rose to a record.
Homebuilding and sales are falling after the expiration of a government tax credit that boosted builder sentiment and brought starts to the highest level in more than a year in April. Demand will now depend on the state of the labor market and foreclosures.
“Support to construction spending via new homes should continue to remain dampened in the coming months,” Maxwell Clarke, chief U.S. economist at IDEAglobal Inc. in New York, said in a note to clients before the report. “Ongoing difficulty of accessing capital for speculative commercial real estate ventures will continue to act as a deadweight in the overall construction measure.”
Economists forecast construction spending would decline 0.5 percent, according to the medianof 52 projections in a Bloomberg News survey. Estimates ranged from a drop of 2.1 percent to a 0.5 percent gain.
Construction spending decreased 7.9 percent in the 12 months ended in June.
Private Construction
Private construction spending dropped 0.6 percent following a 1.4 percent decrease in May. Homebuilding outlays fell 0.8 percent. Private non-residential projects decreased 0.5 percent, reflecting declines in construction of factories, commercial dwellings and communications stations.
Spending on public construction increased 1.5 percent from the prior month, led by power, sewage and waste disposal and conservation plants. Federal building climbed 4.6 percent to $31.7 billion, the most on record.
New home sales reached a record low in May and were the second-lowest last month, according to Commerce Department data, reflecting diminishing demand after the government tax credit expired. June housing starts, reported July 20, fell 5 percent, after a 15 percent decline the prior month.
To qualify for the government tax credit of up to $8,000, purchasers had to sign a contract by April 30. While the government in July extended the deadline for closing on the contract to Sept. 30, from the original June 30, declines in housing starts and building permits suggest residential construction will continue to fall in coming months.
Single-Family Homes
Spending on single-family residential structures dropped 0.7 percent in June, the fist decline in a year, today’s report showed.
Employment gains are needed to boost demand and forestall foreclosures. Home seizuresjumped 38 percent in the second quarter from a year earlier, RealtyTrac Inc. said last month, putting lenders on pace to claim more than 1 million properties this year.
NVR Inc., based in Reston, Virginia, said last month the original June 30 closing deadline to qualify for the tax incentive resulted in a “surge in settlement activity” in the second quarter, with closings jumping 63 percent from the same time a year earlier. New orders fell six percent in the period.
The outlook for commercial projects is less dire should credit begin to flow as office vacancy rates ease. Office vacancies in U.S. central business areas fell in the second quarter from the prior three months, the first drop since 2007, commercial property broker Cushman & Wakefield Inc. said July 8.
In another signal that commercial construction may improve later this year, billings at U.S. architecture firms rose in June, the American Institute of Architects said July 21. Commercial building typically follows the building index by about six months.