Ahead of the Bell: US Construction Spending
WASHINGTON (AP) — U.S. builders likely spent more on homes and other construction projects in October. An increase would signal more strength in the housing recovery.
Economists predict that construction spending rose 0.4 percent in October, according to a survey by FactSet. The Commerce Department will release the report at 10 a.m. EST Monday.
In September, construction spending rose 0.6 percent. Builders spent more on home construction, offsetting weakness in nonresidential building and government projects.
The September increase pushed construction spending to a seasonally adjusted annual rate of $851.6 billion. That was 14.1 percent higher than a 12-year low hit in February 2011. Even with the gain, the level of spending remained only about half of what's considered healthy.
Sales of new homes fell slightly in October, dragged lower by steep declines in the Northeast partly related to Superstorm Sandy. The storm made landfall on Oct. 29 and disrupted business activity in 24 states. New-home sales were still 17 percent higher in October than the same month a year ago.
Strength in home building has been one of the bright spots for the economy this year. But overall construction is still being offset by weakness in commercial real estate and tight state and local government budgets.
From July through September, residential construction grew at an annual rate of 14.2 percent. Housing construction is on track to contribute to economic growth this year, the first time that has happened in the five years since the housing bubble burst.
Though new homes represent only a fraction of the housing market, they have an out-size impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to statistics from the National Association of Home Builders.
Builders are increasingly confident that the housing recovery will endure. A measure of their confidence rose in November to the highest level in 6½ years. And builders broke ground on new homes and apartments in October at the fastest pace in more than four years.
But there are factors dragging on the housing recovery. Many Americans, particularly first-time homebuyers, are unable to qualify for a mortgage. And many can't afford larger down payments that are being required by banks.
While housing has strengthened this year, the broader economy has lagged behind. The government reported last week that overall economic growth increase to an annual rate of 2.7 percent in the July-September quarter, up from 1.3 percent in the April-June quarter. But through the first nine months of this year, economic growth has averaged just 2 percent, far below what is needed to make a significant dent in unemployment.
Many analysts believe growth is slowing in the current October-December quarter to below 2 percent. The disruptions caused by Superstorm Sandy weighed on consumer spending in October. And many consumers and businesses may also be worried about automatic tax increases and spending cuts that are scheduled to kick in next year, if Congress and the Obama administration fail to reach a deal before then to avert them.
