Construction Spending Rises across the Board in August

Private residential construction spending increased 0.7% on a month-to-month basis in August. However, total spending activity in the residential construction sector has been flat to date in 2011, with four month-to-month increases matched by four decreases. On a year-over-year basis, private residential construction spending increased is up 3.9%, the fourth consecutive gain and the largest percentage increase since June 2010.

Spending on new single-family homes increased 0.8% between July and August—the third month-to-month gain in a row. However, spending remains 3.5% down from its year-ago level as the homebuilding market continues to bounce along the bottom. Demand for new homes remains hampered by significant competition from distressed sales, tight lending standards and a weak labor market.

The multifamily construction market showed additional signs of improvement last month, as spending on apartments increased 0.8% during in August. Overall, multifamily construction spending has registered growth in five of the last seven months. Additional gains are likely in the months ahead as multifamily permits data have trended appreciably higher since October 2010. The NAHB Multifamily Housing Production Index offers a similar assessment, rising in the second quarter of 2011 to its highest level since 2006.

Home improvement outlays gained 0.5% in August, This marks the 11th consecutive month it has exceeded spending on new single family homes. While this category also jumped 10.5% on a year-over-year basis, identifying a trend for home improvement spending is difficult due to frequent (and oftentimes large) revisions in the monthly estimates. Other indicators such as the NAHB Remodeling Market Index suggest a lackluster economic recovery and tight lending standards are slowing demand for home improvement projects.

Private nonresidential construction spending increased 0.2% in August, as gains in spending on power and manufacturing facilities, 2.9% and 1.8%, respectively, offset weaker or stable readings for the other sectors. Outlays on public sector construction projects rose 3.1% on a month-to-month basis, with strong gains in educational buildings (+4.3%), roadways (+3.5%) and mass transit (+2.2%). Despite these increases, spending for each of these categories remains appreciably weaker compared to 2010 on a year-to-date basis.



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