Nationwide construction spending increases for third month in a row

12/5/2011 | Construction Blog, Real Estate Blog

Nationwide construction spending in October reportedly rose 0.8 percent from September, marking the third month in a row of increased spending on housing and commercial project construction. Spending in August and September apparently increased by 0.2 percent each month, making the October increases significant.

According to Businessweek, new activity in the housing market, low interest rates and home improvement spending were the main factors in the increase. But while construction spending is up, it is still the case that the overall residential construction is weak. That, along with decreased government spending, means that the industry will be taking its time to get back on its feet.

According to experts, while construction spending can make a positive contribution to the nation’s economic growth, the industry only accounts for 2 percent of the nation’s gross domestic product. Because it is such a small portion of the GDP, even large increases year-to-year have only a small impact.

Interestingly, there are ways to measure things like homebuilder sentiment. The National Association of Home Builders/Wells Fargo actually has a sentiment index. According to that measurement, the index for October was 20, the highest level since May 2010. In that system, a reading less than 50 indicates poor homebuilding sentiment.

Increases in the construction of multifamily dwellings are thought to be a large factor in the increase in homebuilding sentiment. Construction of single-family dwellings, on the other hand, has not fared well, being the lowest on record since 1963.

Source: Businessweek, “Construction Spending in U.S. Rises for Third Consecutive Month,” Alex Kowalski, December 2, 2011.