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Construction spending rises unexpectedly

Christopher S. Rugaber
AP Economics Writer

Washington — Construction spending rose for the second time in three months in June as residential building increased and infrastructure projects paid for by the government jumped.

The report provides fresh evidence the housing sector may be recovering, while the rise in government spending was partly due to the Obama administration’s $787 billion stimulus package, economists said.

The Commerce Department said Monday that construction spending increased by a seasonally adjusted annual rate of 0.3 percent in June, defying analysts’ estimates of a 0.5 percent drop. May construction spending was revised up slightly to a 0.8 percent decline. Still, June’s $965.7 billion in spending was 10.2 percent below the year-ago level.

The data follow earlier reports that new and existing home sales each rose in June, and new home construction also increased. Buyers were taking advantage of bargain prices, low interest rates and a federal tax credit for first-time homeowners. Some homebuilders’ stocks have risen recently, but falling home prices are expected to limit their earnings.

Public construction also helped drive the increase, jumping 1 percent to $321.7 billion for the biggest rise since March, the department said.

Federal government construction spending increased 1.9 percent, the most since December 2008, after falling 0.3 percent in May and plummeting 6.1 percent in April. State and local construction rose 1 percent as spending on education and highway construction also grew.

“It’s reasonable to expect that … some of that spending is related to stimulus money,” said Zach Pandl, an economist at Nomura Securities International. “Public sector spending should gain momentum over the next several months as new projects are rolled out.”

The increase in government construction helped offset a drop in new malls, office buildings and other commercial nonresidential building, which fell 0.5 percent.

Private residential construction, meanwhile, rose 0.5 percent to a seasonally adjusted annual rate of $246.1 billion. The improvement follows a 3.1 percent drop in May.

Construction spending was hammered by the housing and financial crises that plunged the economy into the longest recession since World War II.

Overall, the economy shrank at a 1 percent rate in the April-June quarter, the department said last week, a sharp improvement from the 6.4 percent contraction in the first quarter and a 5.4 percent decline in the fourth quarter of 2008. The gross domestic product, the broadest measure of the nation’s output, has contracted for four consecutive quarters.

New U.S. home sales jumped 11 percent in June to a seasonally adjusted annual rate of 384,000, the strongest pace since November 2008. The last time sales rose that much was in December 2000.

Shares of big homebuilders, including Beazer Homes USA and Hovnanian Enterprises, have jumped in recent weeks. But with home prices falling, the big builders are not expected to make much money anytime soon.

The median sales price of $206,200, was 12 percent lower than a year earlier and down nearly 6 percent from $219,000 in May.

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