Construction spending rises to all-time high

Posted: Thursday, September 02, 2004

WASHINGTON Construction spending sprang back to life in July, rising to the highest level on record, the government reported Wednesday.

The rebound, which came after a June lull, meant that the value of buildings put in place clocked in at a seasonally adjusted annual rate of $997.2 billion, an all-time high level, the Commerce Department reported. That represented a 0.4 percent increase over June's level.

Gains for July were widespread, with spending by private builders on residential units and spending by government on big public works projects each coming in at all-time highs in dollar terms.

Although the 0.4 percent gain was slightly lower than the 0.5 percent rise some economists were expecting, July's performance clearly showed activity gaining momentum over June.

Spending on construction projects was largely flat in June, according to revised figures. That, however, marked an improvement from the 0.3 percent decline initially estimated.

Private builders in July boosted spending on housing projects by 0.3 percent from the previous month to a seasonally adjusted annual rate of $537.5 billion, a record high. In June, spending on residential buildings nudged up by 0.1 percent as builders showed a spurt of caution.

Even though home sales fell in July, economists say purchases of both new homes and previously owned ones are still on track to hit a record high for all of 2004.

The housing market has managed to remain healthy despite high energy prices and a lackluster job climate which can make people more cautious about taking on big financial commitments, economists say. Mortgage rates, while higher than a year ago, are still considered relatively low by historical standards.

The Federal Reserve, wanting to make sure inflation stays under control, has raised short-term interest rates twice this year. That has left a key rate controlled by the Fed at 1.50 percent. Fed policymakers say they plan to take a gradual approach in raising rates.

In another encouraging note, Wednesday's report said that private builders' spending on commercial, or so-called ''nonresidential,'' buildings rose by 0.8 percent in July to a seasonally adjusted annual rate of $220.8 billion. That compared with a 0.8 percent decline in June.

The gains in commercial construction by private builders in July was led by spending on new factories, transportation facilities and communications complexes. Spending on office buildings and hotels and motels, however, posted declines.

Government spending on big public works rose by 0.6 percent in July for the second month in a row. That pushed up spending for this category to a seasonally adjusted annual rate of $238.9 billion in July, an all-time high.



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