Construction Spending In U.S. Rose In April For A Second Month

 By Shobhana Chandra - Jun 1, 2012 10:00 AM ET (from Bloomberg)

Construction spending in the U.S. rose in April for a second month, helped by a surge in housing.

The 0.3 percent gain followed a matching increase in March that was revised higher than previously estimated, Commerce Department figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News called for a 0.4 percent rise.

Cheaper properties and low borrowing costs are lifting orders at homebuilders like Toll Brothers Inc. (TOL), a sign the industry that helped trigger the recession is improving. At the same time, foreclosures remain a restraint on housing, and commercial construction is unlikely to pick up until growth accelerates.

“There’s a modest uptick in demand” for homes, Michael Gapen, a senior U.S. economist at Barclays Plc in New York, said before the report. “The housing recovery should broaden out this year. We’re coming off the bottom.”

Estimates from 49 economists in the Bloomberg survey ranged from a drop of 0.3 percent to a gain of 1.5 percent, following an initially reported 0.1 percent increase for March.

Construction spending increased 6.3 percent in the 12 months ended in April, before adjusting for seasonal variations.

Private construction spending rose 1.2 percent in April from the prior month.

Homebuilding Outlays

Homebuilding outlays jumped 2.8 percent, the highest since October, including a 3.7 percent increase in home improvement.

Private non-residential projects spending declined by 0.2 percent.

Spending on public construction fell 1.4 percent in April from the prior month. Federal construction spending dropped 5 percent while state and local fell 1 percent.

Housing demand is improving. Purchases of new houses climbed 3.3 percent in April, while those of existing homes rose 3.4 percent, figures showed last month.

Construction is getting a lift from higher sales. Housing starts rose 2.6 percent to a 717,000 annual rate in April, according to Commerce Department figures released on May 16.

Toll Brothers is among the builders reporting growth in orders. Second-quarter profit at the Horsham, Pennsylvania-based company exceeded analysts’ estimates as orders surged 47 percent from a year earlier.

“We are feeling better than we have at any time in the past five years,” Chairman Robert Toll said on a May 23 earnings call. “We would like to say we’re back, but we need a little more confirmation. Nonetheless, it sure feels good compared to the desert we’ve just crossed.”

Borrowing Costs

Borrowing costs remain attractive. The average rate on a 30- year fixed mortgage fell to an all-time low of 3.75 percent in the week ended May 31, according to Freddie Mac data going back to 1971.

Construction funded by government agencies is likely to stay under pressure. Communities and states across the nation face soaring costs for pensions and retiree health benefits as sales and property-tax revenue have fallen from the longest recession since the 1930s.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net