Construction spending rebounds
WASHINGTON (AP) - January 2, 2008 The Commerce Department reported that spending on construction
projects rose by 0.1 percent in November to a seasonally adjusted
annual rate of $1.165 trillion, a better performance than what
economists expected. Spending had fallen by 0.4 percent in October.
The small improvement came despite the fact that housing fell
for a record 21st straight month, with private residential
construction dropping by 2.5 percent to an annual rate of $484.9
billion, down by 17.5 percent from a year ago.
However, a closely watched gauge of manufacturing activity
showed the factory sector contracted in December, the first decline
after 10 months of gains.
The Institute for Supply Management said its manufacturing index
dropped to 47.7 in December, down from 50.8 in November. It was the
weakest showing since April 2003 during the period of the U.S.
invasion of Iraq. Any reading below 50 is considered a sign that
manufacturing is contracting rather than expanding.
The December performance was much weaker than the 50.5 reading
that Wall Street had been expecting and provided evidence that the
slowdown in housing and a credit crunch which hit in August were
having an impact on the overall economy.
"The contraction in manufacturing activity is yet another
indication that the housing market problems are becoming more
widespread,' said Joel Naroff, chief economist at Naroff Economic
Advisors.
Nigel Gault, an economist at Global Insight, another forecasting
firm, said the manufacturing decline "clearly moves recession
risks higher."
The weaker-than-expected reading on manufacturing activity
pushed stocks down in early trading as investors grew more
concerned about the economy.
Home builders have been battered by the worst slump in the
housing market in more than two decades, a decline that occurred
after five boom years which had pushed home sales and prices to
record levels. Analysts believe the slowdown in housing will last
through much of 2008, forcing builders to keep slashing their
construction plans in an effort to reduce a huge backlog of unsold
homes.
The housing meltdown has been exacerbated by a sharp increase in
mortgage foreclosures, which dumps more homes on an already glutted
market, and tighter lending standards by banks, which is making it
more difficult to qualify for a mortgage.
There is a danger that the housing slump could push the country
into a full-blown recession but economists believe that worst-case
scenario can be avoided if the Federal Reserve keeps cutting
interest rates. The Fed cut rates three times last year starting in
September.
The blow to the construction industry from the housing meltdown
is being cushioned somewhat by strength in government projects and
non-residential activity.
Private non-residential spending rose by 1.7 percent, a 14th
consecutive monthly gain, which pushed spending in this category to
an all-time high of $375.8 billion at an annual rare. Strong
increases were seen in November for office building, hotels, power
plants, factories and amusement parks.
Spending on government projects rose by 2.5 percent, the biggest
one-month gain since December 2006, pushing activity in this area
to a record level of $304.3 billion at an annual rate.
Spending by state and local governments was up 2.5 percent while
spending by the federal government rose 2.2 percent.