June construction activity posts slight gain as government building offsets weakness elsewhere

June construction activity rises 0.1 percent

WASHINGTON — Construction spending edged up in June but all the strength came from the government. Private sector activity in both housing and nonresidential projects fell.

Construction spending rose 0.1 percent in June, the Commerce Department reported Monday. While that was better than the decline economists had forecast, the government sharply revised down its estimate of activity in May to show a drop of 1 percent rather than the 0.2 percent dip initially reported.

The lackluster performance for construction was the latest indicator that the overall economy slowed in the spring, raising worries about the durability of the recovery that began a year ago.

The government reported last week that total economic growth slowed to a rate of 2.4 percent in the April-to-June quarter, down from a 3.7 percent growth rate in the first three months of the year and a 5 percent growth spurt in the fourth quarter of 2009.

Economists are worried that growth will slow even more in the second half of this year as still high unemployment restrains consumer spending and the impact of the government’s massive stimulus programs fade.

The impact of the withdrawal of government support was evident in the housing sector in June. Spending on housing construction fell for a second consecutive month, dropping 0.8 percent after an even bigger 1.5 percent decline in May.

The federal government’s popular homebuyers tax credit expired on April 30 and since that time housing construction and sales have both taken sharp declines.

Spending on nonresidential building projects fell for a 15th consecutive month, dropping 0.5 percent in June. This sector has been hard hit by the economic downturn which has triggered rising defaults on commercial real estate projects. That has prompted banks to tighten lending standards and made it harder for builders to get financing for new projects.

The only strength in June came in the government sector. Overall public construction rising 1.5 percent, reflecting a 1.1 percent rise in spending by state and local governments on roads, sewer projects and public buildings and a 4.6 percent rise by the federal government.

The increase in federal spending pushed activity at that level to an all-time high of $31.7 billion. Both the increase in federal and state and local spending likely reflected a boost from the $787 billion economic stimulus bill which Congress passed last year to battle a deep recession.

While the measure was passed in February 2009, much of the money for construction projects is just now making it through the pipeline into actual projects.

Total private construction on both residential and nonresidential was down 0.8 percent to a seasonally adjusted annual rate of $527.6 billion. The 1.5 percent rise in public construction pushed the total for government spending to an annual rate of $308.4 billion.