Construction spending rose in March for the first time in five months, but all the strength came in government activity as private sector building fell to the lowest level in a decade. Weakness in construction remains a major drag on the economic recovery.
The Commerce Department said Monday that construction activity increased by 0.2 percent in March, the first advance since last October. The small gain took economists by surprise. They had been forecasting a 0.3 percent drop.
The strength came from a 2.3 percent rise in public building projects, the biggest increase in 13 months. That helped offset declines in the private sector, where activity fell to the lowest point since January 1999.
The building sector has been buffeted by the biggest slump in housing in decades and a downturn in commercial real estate projects such as office buildings and shopping centers.
For March, total building activity edged up to a seasonally adjusted annual rate of $847.3 billion. The 0.2 percent increase followed a revised 2.1 percent plunge in February and was the first advance since a 1.5 percent gain in October.
Residential activity fell by 1.1 percent to an annual rate of $251.8 billion after a 3.4 percent drop in February. The concern among economists is that home construction will continue to lag with the expiration of a home buyers' tax credit and high levels of foreclosures, which are dumping more unsold homes on the market.
Nonresidential activity fell by 0.7 percent in March, the 12th consecutive monthly decline, leaving activity in this sector at a seasonally adjusted annual rate of $299 billion. Construction of office buildings, shopping centers and hotels and motels all fell last month.
The drop in both residential and nonresidential left private construction at an annual rate of $550.8 billion, the lowest point since it stood at $548.9 billion in January 1999.
Government activity rose 2.3 percent to an annual rate of $296.5 billion, reflecting a 2.5 percent rise in state and local spending and a smaller 0.3 percent increase in federal building projects. This sector is being helped by the government's large $787 billion economic stimulus program which Congress passed in February 2009.
Analysts at IHS Global Insight believe things are beginning to improve slowly for residential construction, but they are forecasting that nonresidential construction may not start to show gains until 2012.
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