By Martin Crutsinger
AP Economics Writer
Washington (AP) — Construction spending rose in March for the first time in five months, but all the strength came in government activity as private sector building fell to the lowest level in a decade. Weakness in construction remains a major drag on the economic recovery.
Construction activity increased 0.2 percent in March, the first advance since last October, according to the Commerce Department. The small gain surprised economists, who had been forecasting a 0.3 percent drop.
The strength came from a 2.3 percent rise in public building projects, the biggest increase in 13 months. That helped offset declines in the private sector, where activity fell to the lowest point since January 1999.
The building sector has been buffeted by the biggest slump in housing in decades and a downturn in commercial real estate projects such as office buildings and shopping centers.
The boost in public building was likely the result of stimulus spending by the federal government.
“In sum, it’s nice to see the stimulus in action, but what happens when those dollars run out later this year?” questioned Paul Ashworth, senior U.S. economist for Capital Economics.
For March, total building activity edged up to a seasonally adjusted annual rate of $847.3 billion. The 0.2 percent increase followed a revised 2.1 percent plunge in February and was the first advance since a 1.5 percent gain in October.
Residential activity fell 1.1 percent to an annual rate of $251.8 billion after a 3.4 percent drop in February.
The concern among economists is that home construction will continue to lag with the expiration of a homebuyers’ tax credit and high levels of foreclosures, which are dumping more unsold homes on the market.
Nonresidential activity fell 0.7 percent in March, the 12th straight monthly decline, leaving activity in this sector at a seasonally adjusted annual rate of $299 billion. Construction of office buildings, shopping centers and hotels and motels all fell.
The drop in both residential and nonresidential left private construction at an annual rate of $550.8 billion, the lowest point since it stood at $548.9 billion in January 1999.
Government activity rose 2.3 percent to an annual rate of $296.5 billion, reflecting a 2.5 percent rise in state and local spending and a smaller 0.3 percent increase in federal building projects. This sector is being helped by the government’s $787 billion economic stimulus program that Congress passed in February 2009.
Analysts at IHS Global Insight said they believe things are beginning to improve slowly for residential construction, but they forecast that nonresidential construction may not start to show gains until 2012.