US construction spending fell 1.7 per cent in March led by big drop in government building

WASHINGTON – Spending on U.S. construction projects fell in March as the biggest drop in government projects in more than a decade overwhelmed strength in home building.

Construction spending fell 1.7 per cent in March, compared with February, the Commerce Department reported Wednesday. It marked the second decline in the past three months. January activity plunged a record 4 per cent, which represented a downward revision from a previous estimate of a 2.1 per cent decline.

Even with the recent weakness, construction activity was 4.8 per cent higher in March than a year ago at a seasonally adjusted $856.7 billion.

For March, private residential construction rose 0.4 per cent, the only major sector showing a gain. Government construction activity fell 4.1 per cent, the biggest drop since March 2002, while private nonresidential building was down 1.5 per cent.

The weakness in government activity occurred at all levels. Spending by state and local governments was down 4.2 per cent while spending by the federal government on construction projects was down 1.7 per cent. Economists are expecting federal activity to be reduced in coming months as different agencies cope with across-the-board spending cuts that went into effect on March 1.

The weakness in nonresidential activity reflected declines in spending on commercial projects such as shopping centres.

The rise in residential construction continued a trend that began last year and showed that the housing recovery is being sustained by rising demand. Spending for single-family homes was up 1.6 per cent while multi-family construction rose 0.3 per cent in March.

For all of 2012, construction spending increased 9.8 per cent. That marked the first annual gain after five straight years of declines. Construction spending is still well below healthy levels although housing is helping to support building activity in the face of weakness in government projects.

Steady hiring and nearly record-low mortgage rates have encouraged more Americans to buy homes. More people are also moving out on their own after living with friends and relatives in the recession. That’s driving a big gain in apartment construction and also pushing up rents.

New-home sales rose 1.5 per cent in March to a seasonally adjusted 411,000. The level was 18.5 per cent higher than a year ago.

Sales of previously owned homes slipped in March compared with February. But they are 10.3 per cent higher than a year earlier.

Gains in home sales are helping to lift housing prices and encouraging builders to ramp up activity.

U.S. homebuilders started work on more than 1 million homes in March at a seasonally adjusted annual rate. That’s the first time it has crossed that threshold in nearly five years.

Still, a limited supply of homes for sale could slow the housing recovery’s momentum. And many would-be buyers are unable to take advantage of low mortgage rates because banks have imposed tighter credit conditions and are requiring larger down payments.