Construction spending rises unexpectedly

WASHINGTON - October 1, 2009 The Commerce Department said Thursday that construction spending rose 0.8 percent in August, much better than the 0.2 percent drop that economists had expected. But July activity was revised to show a much steeper decline of 1.1 percent instead of the 0.2 percent drop originally reported.

Still, the August construction gain was encouraging following three straight months of decline. It reflected a 4.7 percent rise in private residential activity, the biggest one-month increase since November 1993.

Building activity has been spurred partly by a consumer rush to take advantage of a first-time home buyers tax credit of up to $8,000 that expires on Nov. 30. However, the housing industry still faces numerous headwinds, including record mortgage defaults that are dumping more homes on glutted markets.

Even with the rebound in August, housing activity, which totaled $249.5 billion at an annual rate, remains 26.7 percent below the year-ago levels.

Spending on nonresidential construction projects dropped 0.1 percent in August to an annual rate of $372.6 billion, the fourth consecutive decline. This sector is being hurt by a credit squeeze as banks, struggling through the worst financial crisis since the 1930s, have tightened up on loan standards.

In August, office building, hotel construction and the category that includes shopping centers all posted declines.

Public construction also fell, dropping 1.1 percent to an annual rate of $219.8 billion. State and local building activity fell 0.5 percent, while federal construction dropped 7.6 percent.

All the changes left total building activity at a seasonally adjusted annual rate of $941.9 billion in August, 11.6 percent lower than a year ago.

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