Construction Spending in the U.S. Decreases to Seven-Year Low

This article appeared in Business Week, this morning ….

Construction Spending in the U.S. Decreases to Seven-Year Low
April 01, 2010, 10:08 AM EDT
By Courtney Schlisserman

April 1 (Bloomberg) -- Construction spending in the U.S. fell in February to the lowest level in more than seven years, signaling this part of the economy remains in a recession.

The 1.3 percent decrease to $846.2 billion, the lowest since November 2002, followed a revised 1.4 percent drop in January that was more than twice as large as previously estimated, Commerce Department figures showed today in Washington.

Housing will be slow to rebound as foreclosures climb and Americans are uncertain about job prospects. At the same time, commercial and government building are also slumping, restrained by a lack of credit and swelling budget deficits.

“It’s one of the headwinds that we’re facing,” Michael Moran, chief economist at Daiwa Securities America Inc. in New York, said before the report. “There’s plenty of excess capacity in business world, plenty of vacant buildings and state and local governments are facing tight budgets so their spending is weak as well. In residential construction, we started to do better last spring and summer but we seem to have stalled.”

Construction spending decreased 13 percent in the 12 months ended in February.

Private residential construction spending fell 2.1 percent in February from a month earlier, taking it to the lowest level since September, today’s report showed.

Private non-residential construction decreased 0.4 percent from January, reflecting declines in commercial, office and lodging projects. Public spending dropped 1.7 percent from a month earlier, as state and local governments trimmed outlays by 1.8 percent. Federal construction fell 0.3 percent.

Economic Growth. The U.S. economy grew at a 5.6 percent pace in the final quarter of 2009, the Commerce Department reported last week. Commercial construction fell at an 18 percent pace, while homebuilding expanded at a 3.8 percent rate, the figures showed.

A renewed slump in residential construction may hurt growth this quarter as sales of new homes fell to the lowest on record in February. Also, housing starts declined last month.

Housing may get some support next quarter from the government’s extension and expansion of an $8,000 tax credit for home buyers. The program requires that contracts be signed by the end of April and closed by June 30.

Lennar Corp., the third-biggest U.S. homebuilder by revenue, said March 24 that cuts in administrative costs and reduced buyer incentives helped narrow its quarterly loss. “We are extremely well-positioned to navigate the rocky bottom and ultimate recovery that lies ahead,” Chief Executive Officer Stuart Miller said on a conference call with investors.

--With assistance from Hui-Yong Yu in Seattle. Editor: Carlos Torres
To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net