Construction activity falls for third straight month, dropping to lowest point in 10 years

By Martin Crutsinger, AP
Wednesday, September 1, 2010

Construction activity declines 1 percent in July

WASHINGTON — Construction spending tumbled in July to the lowest level in a decade, as the housing market struggles in the weak economy and without a popular home-buying tax credit.

Construction activity dropped 1 percent in July, the third straight monthly decline, the Commerce Department said Wednesday. Government revisions showed much weaker activity than previously reported for May and June.

However, a separate report Tuesday from the Institute for Supply Management showed U.S. manufacturing expanded for the 13th straight month. The institute’s manufacturing index posted a reading of 56.3 in August, up from 55.5 in July. A reading above 50 signals growth.

That quieted fears on Wall Street of a second recession. Stocks soared after the report’s release. The Dow Jones industrial average rose more than 200 points in morning trading.

Still, the housing industry is hardly showing signs of a rebound. The July construction decline pushed building activity down to a seasonally adjusted annual rate of $805.2 billion. That’s 10.7 percent below the pace of a year ago and the lowest level since July 2000.

Private residential housing construction fell 2.6 percent to an annual rate of $240.3 billion, adding to the evidence of a slumping industry that has struggled ever since the tax credits expired in April.

Reports last week showed that sales of previously occupied homes fell in July to the lowest level in 15 years, and new home sold at the slowest sales pace in nearly half a century.

Private nonresidential construction managed a 0.8 percent increase in July. It was the first increase since March 2009 and pushed activity in this category to an annual rate of $266.1 billion. That’s still 23.7 percent below the level of activity a year ago.

The economic downturn 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 strength in July reflected gains in electric power projects, communications and transportation. That offset further declines in office buildings, shopping centers and hotels.

Spending on government projects dropped 1.2 percent to an annual rate of $298.8 billion in July. That’s 7.9 percent below the pace of a year ago. The July decline reflected a 0.6 percent fall in spending by state and local governments, who are struggling with huge budget shortfalls, and a 6.5 percent decline in spending on federal building projects.

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