Construction spending sees largest increase since May

Construction spending rises

According to the U.S. Department of Commerce, construction spending in October rose 1.4 percent, the largest increase seen since May, exceeding economists’ predictions for a more tempered increase. The bright spot in the Department’s report was in housing, as home construction spending rose to its highest level since November 2008.

Construction spending generates construction jobs as well as indicating improvement in a hard hit economy, and combined with consistently low interest rates, and improving foreclosure inventory levels, many are optimistic about housing. The National Association of Realtors’ Chief Economist, Dr. Lawrence Yun warns, however, that if we go over the fiscal cliff, or if lending conditions tighten, a housing recovery could be threatened.

The value of all projects rose to $872.1 billion, the most since September 2009, and Superstorm Sandy’s impact on the data was “minimal,” the Commerce Department reports, as it occurred so late in the month and could not be quantified. November data could show a hit taken by the storm, but an eventual increase in construction spending is inevitable after the region picks up the pieces and begins rebuilding.

Varied types of construction spending

All types of construction spending combined rose 9.3 percent in October 2012 compared to October 2011, on an unadjusted basis.

Private construction spending rose 1.6 percent from the prior month, and new home construction spending rose 3.0 percent while private non-residential projects rose by 0.3 percent.

Spending on public projects increased 0.8 percent from the prior month, as federal construction jumped 10.7 percent, the biggest gain since September 2010. State and local agency projects actually fell 0.1 percent from the prior month.

“The growth in new construction sounds very impressive, and it does mark a genuine recovery, but it must be kept in mind that the anticipated volume remains below long-term underlying demand,” Dr. Yun noted. “Unless building activity returns to normal levels in the next couple years, housing shortages could cause home prices to accelerate, and the movement of home prices will be closely tied to the level of housing starts.”