Construction Spending Ticks Higher in September

Private residential construction spending increased 0.2% during September. Construction activity has failed to expand consistently in the past year—six month-to-month increases offset by five monthly declines. Overall, private residential construction spending inched up a meager 0.1% compared to September 2010.

The new single-family home category posted its fourth consecutive month-to-month gain during September, rising 0.5%. However, homebuilding activity can, at best, be characterized as bouncing along the bottom. Outside of the jump in spending created by the homebuyer tax credit, the level of new home construction has moved sideways for the past two years; held back by competition from distressed sales, tight lending standards and a still-weak labor market.

The multifamily construction market continues to show signs of improvement, with spending up 0.2% in September. Indeed, multifamily construction spending has increased in 6 of the last 8 months and more gains are expected due to an upward trend in multifamily permits. Other indicators, such as the NAHB Multifamily Housing Production Index and NMHC quarterly survey of apartment market conditions also point to appreciable gains in multifamily housing demand and production for over the near term.

Home improvement spending jumped 1.4% in September. Shorter-term readings in these data suggest a great deal of volatility in spending activity, but the longer-term trend suggests home remodeling activity has been flat over the past two years. Results from the NAHB Remodeling Market Index indicate the market for home improvement is being held back by the sluggish economic recovery and restrictive lending standards.

Spending on private nonresidential structures increased 0.3% in September, with appreciably higher outlays on health care and transportation categories offsetting slightly weaker readings on commercial and office buildings as well as power plants. Public-sector construction spending fell 0.6% in September, led by a 4.7% decline in air and mass transit. Educational buildings (-0.9%) was the only other major category to see spending weaken on a month-to-month basis. Outlays on highway and street projects climbed 1.4%, but infrastructure spending remains hobbled by budgetary concerns. State and local government spending on this category declined 4.8% on a year-to-date basis.



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