Construction spending surged in August to the highest level on record, fresh evidence that the housing market is helping move the economy ahead.

The Commerce Department (search) reported Friday that the value of buildings put in place clocked in at a seasonally adjusted annual rate of $1.02 trillion, a record high. That represented a 0.8 percent increase in August from July's level.

The strength exhibited in August in part reflected a strong showing in residential projects by private builders, which hit a record high.

The 0.8 percent advance was twice as big as the 0.4 percent increase the economists were forecasting. In more encouraging news, July's performance turned out to be even stronger than previously estimated. Revised figures showed that construction spending jumped by 1.1 percent in July from the previous month.

The report reinforced the view of Federal Reserve (search) Chairman Alan Greenspan (search) and his colleagues that the economy has regained some traction after hitting a soft patch in the late spring and early summer.

Citing signs of some economic improvements, the Federal Reserve last month boosted short-term interest rates for a third time this year. That pushed up a key rate to 1.75 percent, still low by historical standards. The Fed wants to make sure that inflation doesn't become a problem for the economy.

The health of the economy and the availability of jobs are frequent sparring issues on the presidential campaign trail. President Bush says his tax cuts have helped the economy rebound and have spurred job creation. His Democratic opponent, John Kerry, says the tax cuts have benefited mainly the wealthy, squeezed the middle class and plunged the government's balance sheets deeper into red ink.

Although growth in the nation's payrolls picked up in August, the economy is still down 913,000 jobs since Bush took office in January 2001.

The housing market has been a key contributor to economic growth. Home sales are expected to hit record highs this year, aided by relatively low mortgage rates. That has kept home building brisk.

In August, residential projects by private builders rose by 1.7 percent from the previous month to a record high of $550.6 billion, on an annualized basis.

Commercial construction by private builders increased 0.8 percent in August to an annual rate of $227 billion, the highest level since June 2002. That's encouraging news for the commercial sector which has been hard hit by the 2001 recession and has struggled to get back on solid footing.

Government spending on big public works projects, meanwhile, dropped by 1 percent in August from the previous month to an annual rate of $237.6 billion. The weakness in part reflected cuts in spending on schools and highways and streets.