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Construction spending continues upward trend

A worker walks along a beam on the construction site of a commercial rental building in Cleveland recently. Construction spending increased 0.4 percent in November, the Commerce Department reported Monday. (AP photo by Amy Sancetta)

By Martin Crutsinger
AP Economics Writer

Washington — Builders began work on more homes and the government boosted its investment in federal construction projects in November, marking a third straight monthly increase in construction activity after a dismal summer.

Construction spending increased 0.4 percent in November, the Commerce Department reported Monday. Still, building activity is only 2.3 percent higher than in August, when it had fallen to the lowest level in a decade.

The industry has struggled since 2006 when the housing market went bust and helped trigger the worst recession since the 1930s. The recession also cut into demand for commercial projects such as office buildings and shopping centers.

Total spending increased to $810.2 billion in November at a seasonally adjusted annual rate.

The strength in November came from a 0.7 percent rise in private residential construction, which increased to $235.7 billion at an annual rate. That marked the third straight gain.

November was the first time in seven months housing construction, excluding renovation projects, rose.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said home construction had been declining for months since the expiration of a federal home-buying tax credit expired in the spring.

“It now looks as though homebuilding activity has finally hit bottom,” Shepherdson said. “A sustained recovery is still some way off, though.”

Spending on private nonresidential projects dropped for a second straight month. It fell 0.1 percent to an annual rate of $256.1 billion. The weakness reflected widespread spending declines on offices, hotels and shopping centers.

Builders have had trouble obtaining financing for projects since the recession. Banks have tightened credit standards in response to rising default rates.

Spending for government projects rose 0.7 percent to an annual rate of $318.5 billion. State and local government building dipped 0.1 percent.

The one bright spot was federal projects, which increased 8.2 percent to $35.5 billion — a record level. Analysts said this category has been boosted by the economic stimulus package that President Barack Obama got through Congress in February 2009, a month after taking office.

However, analysts cautioned that government spending is likely to decrease in the second half of 2011. Government projects are winding down, and the new Congress and many state governments are aiming to trim spending in response to sizable budget deficits.

Kenneth Simonson, chief economist for the Associated General Contractors, said he expects declines in a number of federal categories, from stimulus projects to spending to support the military base realignment program.

Patrick Newport, an economist at IHS Global Insight, predicted spending on single-family homes and apartment construction will remain lackluster, and nonresidential construction will continue to decline.

“Construction spending may have turned the corner,” he said, “but a solid rebound is months away.”

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