US construction spending up tiny 0.1 per cent in February despite drop in housing construction

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WASHINGTON – U.S. construction spending posted a slight increase in February as a rebound in construction of hotels and other nonresidential buildings offset a decline in housing.

But housing construction fell as activity was still being depressed by the harsh winter.

Construction spending increased a scant 0.1 per cent in February after a 0.2 per cent drop in January, the Commerce Department reported Tuesday. The increase left construction at a seasonally adjusted annual rate of $945.7 billion, 8.7 per cent above the level of a year ago.

The small increase in February came from a 1.2 per cent advance in nonresidential projects, led by a 3.5 per cent rise in construction of hotels and motels. Spending on government projects edged up 0.1 per cent, helped by a big gain at the federal level. Residential construction dropped 0.8 per cent, the biggest setback since July.

The increase in nonresidential construction was a rebound from January when spending in this area had fallen 1 per cent. The February increase was helped by gains in spending on construction of lodging establishments which offset weakness in office building and the category that includes shopping malls.

The 0.1 per cent rise in public construction reflected a 5.8 per cent rise in spending at the federal level which offset a 0.5 per cent decline in spending on state and local government projects. Even with the small February advance, government construction spending is down 1 per cent from a year ago government projects have been restrained by tight budgets.

The 0.8 per cent decline in housing construction followed sizable gains in the previous three months and was expected to be a temporary drop. Housing is expected to continue being a source of strength for the economy in 2014. Economists say a strengthening economy will boost employment and the employment gains will provide the income gains needed to convince potential home buyers to take the plunge.

Most economists are looking for sales of new and existing homes to show improvement as the spring buying season gets into full swing. They expect pent-up demand to help sales following an unusually severe winter which depressed sales.

Housing, while still a long way from the boom of several years ago, has been recovering over the past two years.

One assumption underlying the optimism on housing: Even as the Federal Reserve keeps scaling backs its bond purchases, which were used to keep long-term rates low, mortgage rates will rise only gradually this year.

In her first major speech as leader of the Federal Reserve, Chair Janet Yellen delivered a strong statement on her concerns about a labour market she said was still too weak. Even though the Fed has been gradually trimming its bond purchases, Yellen said the central bank still needs to provide significant support to the economy.

She said that the extraordinary support the Fed is providing will be needed “for some time,” a view she said was widely held by other Fed officials.

Her comments lifted spirits on Wall Street where investors had been worried that remarks Yellen had made last month following a Fed meeting might indicate that the central bank could start raising a key short-term interest rate sooner than expected.

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