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U.S. Construction Spending Decreases on Commercial Slump

Tuesday, 01 Mar 2011 12:00 PM

 

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(Updates with economist comment in fourth paragraph.)

March 1 (Bloomberg) -- Construction spending in the U.S. fell more than forecast in January, paced by the biggest slump in commercial projects in 17 years, showing the industry will continue to be a laggard in the economic recovery.

The 0.7 percent drop brought the value of all projects down to a $791.8 billion annual rate, the lowest since August, Commerce Department figures showed today in Washington. Outlays on private non-residential works dropped 6.9 percent, the most since January 1994, which may in part reflect the influence of winter storms.

Construction of power plants, hospitals, hotels and office buildings dropped during the month as tight credit and high vacancy rates restrained investment. Outlays on home improvements helped boost residential construction, a sign more Americans are deciding to stay in their current houses.

“Commercial construction is usually the last sector to recover and there is still a lot of bad debt in that sector,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. “Lack of financing is a key problem.’

The median estimate of economists in a Bloomberg News survey called for a 0.4 percent decline and reflected responses from 49 economists. Estimates ranged from a drop of 2 percent to an increase of 0.8 percent. The Commerce Department revised the December reading up to a 1.6 percent drop from a previously estimated decline of 2.5 percent.

Private Construction

Private construction spending fell 1.2 percent in January from the prior month. Homebuilding outlays increased 5.3 percent, including an 11 percent jump in home improvement.

Spending on public construction fell 0.1 percent, the report said. Federal construction spending increased 9.1 percent.

Weather may have played a role in the slump. January was the fifth snowiest such month in 45 years of satellite coverage, according to the National Climatic Data Center. About 71 percent of the country had snow by Jan. 12.

Housing starts have been picking up since reaching a low in April 2009. Starts rose 15 percent last month to a 596,000 rate, the Commerce Department said last week.

More distressed homes may come on the market this year after home seizures were delayed due to state investigations and bank reviews of foreclosures. The number of homes receiving a foreclosure notice will climb about 20 percent in 2011, reaching a peak for the housing crisis, RealtyTrac Inc., an Irvine, California-based data seller, said last month.

Home Prices

That will put more pressure on prices. The S&P/Case-Shiller index of home values in 20 cities fell 2.4 percent in December from a year earlier, the biggest 12-month decrease since December 2009, the group said last week. Prices were down 31 percent from their peak in July 2006.

Homebuilders are still showing losses. D.R. Horton Inc., the second-largest U.S. homebuilder by stock-market value, on Jan. 27 reported a fiscal first-quarter loss that was wider than analysts expected.

“We need job growth, we need consumer confidence and we still have issues with qualifying people with tighter mortgage underwriting” standards, D.R. Horton Chief Executive Officer Donald Tomnitz said during a conference call the same day.

Government agencies are under pressure to cut spending. States are projecting $125 billion of budget deficits in fiscal 2012 and will lose most federal stimulus funds this year, the Washington-based Center on Budget and Policy Priorities said in a Jan. 21 report.

--Editor: Carlos Torres

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

© Copyright 2014 Bloomberg News. All rights reserved.

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