US construction spending edges up 0.1 per cent in May despite decline in home building

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WASHINGTON – U.S. construction spending barely increased in May as gains in spending on non-residential projects such as office buildings and public construction were largely offset by a big drop in home building.

Construction spending edged up 0.1 per cent in May after a much stronger 0.8 per cent April increase, the Commerce Department reported Tuesday. The back-to-back gain followed a period of weakness in which spending fell in both January and February and was flat in March.

The construction industry has struggled with an unusually severe winter which curtailed building activity in many regions.

Construction activity totalled $958.1 billion at a seasonally adjusted annual rate in May, up 6.6 per cent from a year ago.

Economists are forecasting that housing and overall construction will regain momentum in coming months, helping to boost overall economic growth.

However, housing suffered a setback in April, falling 1.5 per cent. Single-family home construction was down 1.4 per cent while apartment construction dropped 0.6 per cent. Overall, housing construction is up 7.5 per cent from a year ago.

Non-residential construction rose 1.1 per cent, led by a 4.3 per cent rise in construction of power generating facilities. Construction of office buildings was up slightly but spending on hotels and the category that covers shopping centres both showed declines.

Spending on government projects rose 1 per cent with a 2 per cent jump in spending on state and local building projects offsetting an 8.9 per cent decline in spending by the federal government on building projects.

A slump in construction in the winter contributed to the economy shrinking at an annual rate of 2.9 per cent in the January-March quarter, the biggest decline since the first quarter of 2009 during the depths of the Great Recession.

The sharp downturn reflected not just bad weather but a decision by businesses to slow restocking of empty shelves and trim their capital spending on equipment. Additionally, the trade deficit widened in the first quarter, which also held economic activity back.

But analysts believe all of those developments were temporary and will be reversed in the current April-June quarter.

They had been expecting a rebound to growth as high as 4 per cent in the second quarter, but disappointing results so far in consumer spending have caused them to trim back their forecasts, with many now looking for growth of around 3 per cent, still a significant improvement from the sharp contraction in the first quarter.

Sales of both new and existing homes showed gains in May, providing evidence that housing is regaining lost momentum following a weak second half of last year when sales were hurt by a rise in mortgage rates and the lack of adequate supplies of new homes and then a harsh winter, which dampened demand further.

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