WASHINGTON – U.S. construction spending posted modest gains in April, driven by an uptick in home building and government construction that lifted total activity to the highest level in five years.
Construction spending rose 0.2 per cent in April to a seasonally adjusted annual rate of $953.5 billion, the strongest performance since March 2009, the Commerce Department said Monday. The April increase was lower than economists had expected. But the government revised March activity higher to a 0.6 per cent gain, up from an initial estimate of a 0.2 per cent increase.
The small April improvement, combined with the strong gain in March, suggest that the construction industry is recovering from the harsh winter and will provide a boost to growth in the months ahead.
“This was mostly a good report,” IHS Global Insight economists Stephanie Karol and Patrick Newport said in an analyst note. “Core construction, the piece of the report which affects GDP, advanced 0.6 per cent, the largest gain since December.”
The April figure marked the third straight increase after the weather pushed spending down 0.4 per cent in January. Construction activity dragged the overall economy in the first quarter when gross domestic product actually shrank.
The overall economy contracted at an annual rate of 1 per cent in the January-March quarter. Analysts estimate growth to recover to a rate of around 3.8 per cent in the April-June period. The expectation is that strong gains in hiring will help lift consumer spending. Other sectors including construction should also bounce back.
In April, residential construction edged up 0.1 per cent. It was the lowest monthly gain since an outright decline last October. However, the small increase followed strong gains over the past five months and was enough to lift spending on housing to a seasonally adjusted $378.5 billion, the highest level since March 2008.
Spending on single-family home construction was up 1.3 per cent, while spending on apartment construction rose 2.7 per cent. Only the remodeling sector, which accounts for 40 per cent of the total, posted a decline, falling 2.2 per cent.
Spending on non-residential projects fell 0.1 per cent to an annual rate of $308 billion, with weakness in the communications industry, where activity dropped 11.7 per cent. Spending on hotels, office buildings and shopping centres all showed gains.
Government construction spending rose 0.8 per cent to a rate of $267 billion. This sector has been struggling because of budget cutbacks at all levels of government. In April, spending on federal projects rose 1.9 per cent to a rate of $23.5 billion. Spending on state and local projects was up 0.7 per cent to $243.5 billion.
Total construction spending is 8.6 per cent higher than a year ago, led by a 17.2 per cent increase in housing construction. Non-residential construction is up by 5.6 per cent from a year ago, while government projects are just 1.2 per cent higher.