Construction spending edges up in August with private sector declines offset by government

By Martin Crutsinger, AP
Friday, October 1, 2010

August construction spending up 0.4 percent

WASHINGTON — Construction spending rose in August as a big jump in government building projects offset further weakness in the private sector.

Construction spending edged up 0.4 percent in August following a 1.4 percent drop in July, the Commerce Department reported Friday. While spending on government projects rose 2.5 percent, spending on private construction projects dropped to the lowest level in 12 years.

The weakness in construction activity has been a major drag on the overall economy. Given continuing problems in housing and commercial real estate, analysts are not looking for a sustained rebound in the building industry for some time to come.

In August, private construction fell for a fourth consecutive month, a decline of 0.9 percent that left private sector building at an annual rate of $498.2 billion, the slowest pace since January 1998.

Residential construction was down 0.3 percent to an annual rate of $238.5 billion. Residential spending has been down every month starting in May. Housing activity received a temporary boost in the spring as homebuyers rushed to take advantage of a homebuyer tax credit before it expired on April 30. But since that time, home construction has struggled.

Spending on nonresidential projects dropped 1.4 percent to an annual rate of $259.7 billion after a small 0.2 percent rise in July. The August weakness reflected a big drop in the sector that includes shopping centers and smaller declines in spending on hotel construction and office buildings.

The economic downturn 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.

Government spending rose 2.5 percent to an annual rate of $313.6 billion, led by a 2.7 percent rise in spending on state and local building projects and a 0.7 percent increase in federal building projects.

Government construction has received a boost from the billions of dollars included in the original $787 billion economic stimulus program that President Barack Obama proposed and Congress passed in February 2009 to help jump-start economic activity.

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