Construction spending in the U.S. rose in August for a fifth consecutive month, propelled by the strongest outlays on homebuilding in five years.
Expenditures were up 0.6% to a $915.1 billion annual rate following a revised 1.4% increase in July that was larger than previously estimated, the Commerce Department reported today in Washington. The median forecast of economists surveyed by Bloomberg called for a 0.4% increase.
Gains in commercial and residential construction are boosting the economic expansion even as rising interest rates and tight land inventories temper growth. In addition, federal outlays dropped to the lowest level in five years, showing government budget cuts will hold the industry back.
“The housing market is going to be the key driver of growth in the back half of the year,” Brett Ryan, U.S. economist at Deutsche Bank Securities Inc. in New York, said before the report. “Despite the backup in rates, affordability is still higher than it was in seven previous business cycles.”
Estimates in the Bloomberg survey of 52 economists ranged from a drop of 0.5% to a gain of 1.2%, following an initially reported 0.6% increase for July. Today’s data, originally scheduled for release on Oct. 1, was delayed by a federal budget impasse that led to a 16-day partial government shutdown that ended last week.
Construction spending climbed 5.9% in the 12 months ending in August before adjusting for seasonal changes, according to Commerce data.
Private construction spending climbed 0.7% from the prior month. Homebuilding outlays increased 1.2% to $340.2 billion, the highest level since August 2008. Spending on non-residential projects rose by 0.1%, including gains for office buildings and communications plants.
Expenditures on government projects advanced 0.4% from the prior month. Federal construction spending dropped 3.8% to $22.9 billion, the weakest since June 2008. State and local spending climbed 0.8%.
The rate on 30-year home loans, which was as low as 3.81% at the end of May, averaged 4.58% in the week ended Aug. 22, the highest since July 2011, and remained near that level through most of September, according to data from McLean, Virginia-based Freddie Mac.
Those higher borrowing costs are holding back would-be homebuyers and slowing price increases. Sales of single-family homes, condominiums and co-ops fell in September for the first time in three months, retreating from an almost four-year high, the National Association of Realtors reported yesterday.
While the annual pace of sales dropped 1.9% to 5.29 million, prices climbed 11.7%, pushing affordability to an almost five-year low.