Tuesday, January 6, 2009

Institutional buildings buoy U.S. construction spending in November

Construction on offices, prisons and other non-residential structures kept U.S. construction spending from falling farther than expected in November, according to figures released Monday.

The U.S. Commerce Department said overall construction spending slid by 0.6 per cent in November, half the drop experienced in October and far less than what analysts had expected for the 11th month of the year.

Within the overall figure, however, the amount spent by governments and companies on non-residential buildings provided almost all of the lift in the monthly statistics as residential expenditures fell within November compared to October.

Housing halt

That result probably should not come as a surprise as U.S. housing prices have been plummeting for months, resulting in lower demand for new homes.

In November, private residential construction fell by 4.2 per cent in the month compared to October and a hefty 23.4 per cent versus the same month one year earlier.

U.S. construction spending (Nov.)US $ Percentage changeTotal residential 435.8B -4.1 Private non-residential 388.3B 0.7 Total public 298.4B 1.4Source: U.S. Commerce Department

Offsetting the home building slip, private non-residential construction — office buildings and facilities such as universities and nursing homes — rose by 0.7 per cent comparing November to October and was up 10.3 per cent versus November 2007.

In addition, more public dollars were spent building prisons and other correctional facilities, which in turn helped boost the public non-housing component by 1.4 per cent in November and 7.8 per cent on a year-over-year basis.

Building for the future

Construction activity is often seen as an indicator of future economic activity and, in a time when most of the economic indicators are bad, is seen as a sign of a moribund construction sector coming out of hibernation.

As well, analysts expect the new administration of incoming U.S. president Barack Obama to start spending more cash on building things as a way of generating some economic activity. Obama is to take office Jan. 20.

"A focus on infrastructure spending like roads, bridges and schools is anticipated," said Scott Anderson, chief economist at Wells Fargo & Co. in his 2009 look ahead. "Certainly, such spending is sorely needed and will provide economic benefits well beyond the next few years."

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