Construction spending drops in February

Martin Crutsinger
AP Economics Writer

Washington — U.S. builders trimmed activity for a second straight month in February, pushing construction spending down by the largest amount in seven months.

There was widespread weakness, with spending on homebuilding, office construction and government projects all dropping.

The Commerce Department reported Monday that construction spending fell 1.1 percent in February after a drop of 0.8 percent in January.

With the back-to-back declines, construction spending stood at a seasonally adjusted annual rate of $808.9 billion in February, just 6.1 percent above a low hit in March 2011 and about one-third less than the high hit during the housing boom.

The construction weakness during the past two months underscored that the nation’s construction industry still is struggling to emerge from the 2007-2009 recession, a decline that was triggered by a collapse in housing following an unsustainable boom in that sector.

Analysts said the weakness in construction would have been even more pronounced if it had not been for the mild winter, which meant more building activity than usual in January and February. They predicted a modest improvement in construction in coming months.

“Unless there is another hiccup in the nation’s economic momentum,” said Anirban Basu, chief economist with the Associated Builders and Contractors Inc., “construction spending data will come to reflect the improvement in the broader economy that observers noted during the past half year.”

Housing construction was unchanged in February at a seasonally adjusted annual rate of $246.5 billion after a small 0.1 percent dip in January.

Spending on nonresidential construction projects dropped 1.6 percent following a 2.3 percent decline in January. The February decline reflected weakness in office construction, hotels and shopping malls.

Government construction dropped 1.7 percent to an annual rate of $281.6 billion with state and local building projects down 2.1 percent, while spending by the federal government rose 1.9 percent.

In February, sales of new homes fell for a second straight month, a reminder that the depressed housing market remains weak despite some signs of improvement.

Sales of new homes fell 1.6 percent in February to an annual rate of 313,000. That is less than half the 700,000 homes that economists consider to be healthy.

By contrast, three months of strong job gains have lifted sales of previously owned homes but that support has not benefited the new home market.

Sales of previously owned homes have risen more than 13 percent since July, and January and February combined for the best winter of re-sales in five years.

Though new-home sales represent less than 10 percent of the housing market, they have an outsize effect on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.

Builders are growing more confident after seeing a growing number of people express interest in buying this year.

They’ve responded by requesting the most permits to build single-family homes and apartments since October 2008.