Commercial projects reflect in US gains

Construction spending in the US rose in June for a third consecutive month, led by a gain in non-residential building, including factories, communications plants and commercial structures. The 0.2 per cent increase followed a revised 0.3 per cent gain in May that was previously reported as a drop, Commerce Department figures showed in Washington. The median estimate of economists in a Bloomberg News survey projected a 0.1 per cent increase. Lower interest rates, easier lending rules and a drop in raw-material costs may keep stimulating a rebound in commercial projects that will help underpin business investment, one of the few areas of the economy that contributed to growth last quarter. At the same time, decreases in government spending and a stagnant housing market probably mean a broad-based rebound in the industry will fail to take hold. "The fiscal situation continues to contract state and local government budgets," Sean Incremona, a senior economist at 4Cast in New York, said before the report. "Falling commodity prices could be helping the construction sector." Article continues below Estimates of the 49 economists surveyed ranged from a decrease of 0.5 per cent to a gain of 0.9 per cent. The Commerce Department revised the May data from a previously reported 0.6 per cent drop. April figures were also updated to show an increase rather than a decrease. Construction spending fell 4.7 per cent in the 12 months ended in June. Private construction up Private construction spending rose 0.8 per cent in June, a third consecutive gain. Home-building outlays decreased 0.3 per cent, which included a 0.5 per cent drop in home improvement, according to Bloomberg calculations based on the data. More building permits Housing starts in the US rose 15 per cent in June, led by a 30 per cent increase in multi-family construction, the Commerce Department reported on July 19. Building permits, a sign of future construction, also increased. Falling home prices are hurting consumer confidence and demand for real estate. The S&P/Case-Shiller index of property values in 20 cities fell 4.5 per cent in May from a year earlier, the biggest 12-month drop since November 2009, the group reported last week. Lender delays in processing home-loan defaults, while crimping current distressed transactions, will push as many as 1 million US foreclosures from this year into 2012 or beyond, casting an "ominous shadow" on the housing market, RealtyTrac, a housing data provider, said last month. A clogged foreclosure pipeline may prevent real estate prices from finding a bottom. PulteGroup, the largest US homebuilder by revenue, last week reported a worse-than-expected second-quarter loss as sales fell amid slumping demand for new houses. "The industry is moving along a cyclical bottom that is proving to be fairly stable," chief executive officer Richard Dugas said in a teleconference on July 28. "Simply put, we need more jobs and better consumer confidence before a meaningful recovery can occur." Private non-residential projects increased 1.8 per cent, the most since March. Manufacturing and communications projects climbed 4 per cent, while outlays for commercial building rose 3.1 per cent, today's report showed. Spending on public construction dropped 0.7 per cent in June from the prior month as state and local government projects declined 0.6 per cent. Federal construction spending fell 2.2 per cent. "For six districts, activity in the nonresidential real estate market has improved slightly for specific submarkets, although conditions generally remained weak across all twelve districts," the Federal Reserve said July 27 in its Beige Book survey of regional US economies since early June. General pointers The latest data will figure into the revisions to second- quarter gross domestic product that will be issued later this month. The economy grew at a 1.3 per cent annual pace from April through June after expanding at a 0.4 per cent rate in the first three months of the year. A gain in commercial construction added 0.2 percentage point to growth and residential building contributed 0.1 point.