U.S. Construction Spending Fell 1% in October, Led by Housing

Discussion in 'Wall St. News' started by S2007S, Dec 1, 2006.

  1. S2007S


    yep, the housing sector is coming back. Wait another 3-5 years...

    U.S. Construction Spending Fell 1% in October, Led by Housing

    By Bob Willis

    Dec. 1 (Bloomberg) -- Construction spending in the U.S. fell by the most in five years in October, led by a plunge in home- building, a government report showed.

    Spending fell 1 percent, more than forecast, following a 0.8 percent drop in September that was larger than originally reported, the Commerce Department said today in Washington. Spending on private residential construction fell for a seventh straight month.

    Builders such as Toll Brothers Inc. are cutting back on projects as demand for new homes wanes and are offering incentives to reduce inventories. Federal Reserve Chairman Ben S. Bernanke said this week that residential construction is likely to be a drag on economic growth into next year.

    ``As we continue to see excess inventory of homes, there won't be much residential construction,'' Gina Martin, an economist at Wachovia Corp. in Charlotte, North Carolina, said before the report.

    Economists surveyed by Bloomberg News expected construction spending to decline 0.4 percent in October after an originally reported 0.3 percent drop in September, according to the median of 47 forecasts in a Bloomberg News survey.

    Private residential construction spending fell 1.9 percent in October, after declining 1.4 percent the month before, today's Commerce Department report showed.

    The housing slump, which follows a five-year boom, helped depress the pace of economic growth last quarter to the lowest this year. Growth slowed to a 2.2 percent annual rate, from 2.6 percent in the second quarter, as residential construction recorded the biggest drop in 15 years.

    `Important Influence'

    ``Housing has played a significant role in the recent slowing of overall activity, and developments in this sector are likely to have an important influence on economic growth going forward,'' Bernanke said in a speech in New York on Nov. 28.

    Housing starts in October fell to the lowest level in more than six years, while building permits fell to the lowest since December 1997, the government reported Nov. 17.

    New-home sales fell 3.2 percent to the third-lowest since 2003 in October. The National Association of Realtors forecasts a 17.3 percent drop in new-home sales this year to 1.06 million, which would still be the fourth-highest on record.

    Home builders and suppliers are feeling the pinch. Toll Brothers Inc., the sixth-largest home-builder by revenue, said Nov. 7 its orders tumbled 58 percent in the quarter ended Oct. 31.

    ``We continue to look for signs that a recovery is imminent but can't say that one is in sight,'' Robert Toll, chief executive of the Horsham, Pennsylvania company, said on a conference call. ``Nobody wants to buy something that they think will cost less two weeks or two months later.''

    Home Sales

    Falling home sales are prompting homebuilders to reduce projects and hiring plans. Builders shed 26,000 jobs in October, the most since February 2003, the Labor Department said on Nov. 3.

    Makers of construction equipment such as Caterpillar Inc. are being hurt by the slump. The world's largest maker of earthmoving equipment in October said third-quarter profit rose less than analysts forecast and predicted sales will weaken next year.

    Corporate construction has held up longer as companies invest in new plants and offices after posting the strongest year- on-year profit growth in 22 years last quarter.

    Private non-residential construction fell 0.7 percent in October and was up 16.4 percent from the same month a year ago, today's report showed. Companies spent less on factories, offices and commercial space.

    Total non-residential construction, including public projects, was unchanged in October from the previous month and rose 13.6 percent from a year earlier, today's report showed.

    Business Spending

    Business spending on structures rose at a 16.7 percent annual pace in the third quarter, the government's Nov. 29 gross domestic product report showed.

    Government spending helped make up for the decline in outlays by companies.

    Taxpayer-funded construction rose 0.8 percent after gaining 0.2 percent in September, today's report showed. Spending on government-funded health care facilities rose 6 percent, and spending on transportation projects rose 4 percent.

    State and local construction spending was unchanged after a 0.5 percent gain in September, while outlays for federal construction projects jumped 11.6 percent in October.

    To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net
    Last Updated: December 1, 2006 10:00 EST