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US construction spending tumbled in April

WASHINGTON – U.S. construction spending fell in April by the biggest amount in five years, dragged by declines in housing, commercial construction and spending on government projects.

Construction spending dropped 1.8 per cent in April after a 1.5 per cent gain in March, the Commerce Department reported Wednesday. It was the biggest monthly decline since a 4.1 per cent plunge in January 2011.

Jennifer Lee, senior economist at BMO Capital Markets, cautioned against reading too much into one negative month for construction, noting that the data can be volatile.

“This series is prone to big revisions,” she said, noting that the March increase of 1.5 per cent had initially been reported as a much smaller rise of 0.3 per cent.

Ted Wieseman of Morgan Stanley Research suggested that the April decline represented a payback from strong gains in prior months, which had been boosted by unusually mild winter weather.

Spending on housing fell 1.5 per cent, nonresidential building was also down 1.5 per cent and spending on government projects declined 2.8 per cent.

The drop in overall construction was unexpected. Private economists had been forecasting a gain of around 0.6 per cent. Housing construction has been a bright spot for the economy in recent months. In the first quarter, residential investment grew at a sizzling annual rate of 17.2 per cent.

The April report showed widespread declines. The fall in housing reflected a 3.1 per cent drop in apartment construction, a volatile category, and no change in the level of activity for single-family construction.

The decline in nonresidential construction stemmed from a drop of 2.1 per cent in construction of hotels and motels and a 3.6 per cent fall in the category that includes shopping centres. Construction of office buildings rose by 1.6 per cent during the month, but spending on factories fell by 1.5 per cent.

Spending on state and local government projects fell 3 per cent, and spending by the federal government dropping by 0.2 per cent.

The declines left total construction at a seasonally adjusted annual rate of $1.13 trillion in April, up 4.5 per cent from a year ago.

The home construction boom peaked in 2006. But after the housing bubble burst, construction activity fell for the next five years but has been rising since 2012.