Residential Construction Spending Rises in October

Spending on private residential construction projects jumped 3.4% during October. The initial estimate for September was also revised higher, shifting from a gain of 0.2% up to 0.6%. Even with these recent improvements, total private residential construction spending has failed to gain any considerable forward momentum in the past year, with modest growth of only 1.7% rate versus October 2010.

New single-family housing notched its fifth consecutive month-to-month increase in spending with a 0.6% gain in October. In addition, this category registered a 1% improvement over October 2010 levels, representing — the first year-over-year increase in 13 months. This improvement is consistent with recent data pointing to stabilizing house prices and improving homebuilder optimism. However, the single-family housing market continues to struggle, constrained by tight mortgage loan standards, still-high competition from distressed properties and a meager job market recovery.

Multifamily construction spending took a step back for the second consecutive month, posting a 0.8% decline in October after recording a 4.2% drop during September. Nevertheless, multifamily construction spending is 6.7% above its year-ago level and the recent performance of multifamily starts and permits point to additional increases in spending on apartments and other multifamily projects. The home improvement component of construction spending registered its third month-to-month gain in a row, climbing 6.7% in October. From a longer-term perspective, however, activity in the home remodeling market, like the new home market, has shown no appreciable gain over the past two years.

Private nonresidential construction activity jumped 1.3% during October, but the initial September estimate was revised downward from a 0.3% gain to a modest 0.1% decline. Commercial buildings and manufacturing facilities have experienced a steady recovery in spending activity over the course of 2011, but outlays on lodging and office properties continue to hover near cyclical lows. Public-sector construction spending declined 1.8% in September, with the most notable decline occurring in the educational buildings category. Outlays on highway and street projects fell slightly, but on a year-over-year basis spending has declined more than 8%, possibly as a result of budgetary strains at the state and local government level.



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