Ahead of the Bell: Construction spending

AP News
Posted: Jun 01, 2011 7:00 AM
Ahead of the Bell: Construction spending

Builders likely began work on more office buildings and other projects in April, pushing up construction spending for the second straight month. The increases however are from very low levels and the construction sector remains weak.

Construction spending likely increased 0.3 percent in April, according to a FactSet survey, below the 1.4 percent rise posted in March. The March figure was the first increase after three months of declines. Harsh winter weather in February pushed building activity to its lowest level in more than a decade.

Construction spending stood at a seasonally adjusted annual rate of $768.9 billion in March, just half the $1.5 trillion pace economists consider healthy.

The Commerce Department will release the construction spending report Wednesday at 10:00 a.m. EDT.

Building activity was boosted in March mostly by home renovations and greater commercial construction, as developers built more hotels, hospitals, and factories. More homeowners are renovating their houses, rather than move. Construction of new single-family homes and apartments fell in March.

The housing sector is still in a deep slump, more than four years after the sector's downturn began. Home prices in major U.S. cities fell in March to its lowest level since 2002, according to the Standard & Poor's/Case-Shiller index, released Tuesday. Prices in 12 of the markets tracked by the 20-city index fell to their lowest points since the housing bubble burst in late 2006.

There is little sign that things will turn around soon. Foreclosures are contributing to a glut of unsold homes that is driving down prices. Low prices can make potential sellers reluctant to put their homes on the market, because many already owe more on their mortgages than their homes are now worth. Low prices can also make buyers hesitant, since home prices might fall further. Some potential home buyers also have trouble getting mortgages from banks that have tightened their credit standards.

The number of people who signed contracts to buy homes fell sharply in April to the lowest level in 7 months, the National Association of Realtors reported Friday. Contract signings are considered a reliable indicator of the housing market's direction. That's because there's usually a one-to-two-month lag between a sales contract and a completed deal.