U.S. construction spending rose 0.8% in October to seasonally adjusted annual rate of US$798.5B, its third straight monthly increase, as builders spent more on homes, offices and shopping centers

Cindy Allen

Cindy Allen

Dec 1, 2011 – Associated Press

WASHINGTON , December 1, 2011 () – U.S. builders spent more in October on homes, offices and shopping centers, pushing construction spending up for a third straight month. Despite the gains, construction spending remained depressed.

Construction spending rose 0.8 percent in October to a seasonally adjusted annual rate of $798.5 billion, the Commerce Department said Thursday. While an improvement, that's barely half the $1.5 trillion that economists consider healthy. And through the first 10 months of this year, construction spending is 2.9 percent below the dismal levels from 2010.

The construction industry was hit hard from the housing bust and has had trouble recovering from the recession. Analysts say it could be four years before construction returns to healthy levels.

Severe budget problems have squeezed state and local governments while the federal government is under pressure to cut deficits. Government construction spending fell 1.8 percent in October to $279.9 billion. State and local projects dropped 1.4 percent and federal construction was down 5 percent.

Private builders haven't fared much better. While their spending increased, they have scaled back on construction plans and are working from depressed levels.

Residential construction rose 3.4 percent in October to an annual rate of $239 billion. Gains in single-family construction and renovation projects offset declines in apartment construction.

Non-residential construction rose 1.3 percent to $279.6 billion. That reflected increases in office buildings and shopping centers, which offset declines in hospitals, schools and recreation centers.

Builders broke ground on homes and apartments at a seasonally adjusted annual rate of 628,000 in October. That's roughly half the 1.2 million that economists equate with a healthy housing market.

One positive sign: applications for building permits, considered a good indication of future activity, rose 11 percent in October. The increase was led by a 30 percent jump in permits for apartments, which reached the highest level in three years.

Still, sales of new homes are on pace for their worst year since the government began keeping records in 1963.

Builders are struggling to compete in a market saturated with foreclosures and short sales -- where lenders accept than what is owed on the mortgage. Those homes are selling for at an average discount of 20 percent, which is lowering neighboring home values.

While new homes represent less than one-fifth the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

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