Construction spending weak despite small uptick

WASHINGTON – Builders began work on more home-remodeling projects in April. But the increase barely lifted overall construction spending above its lowest level in more than a decade, a sign that the troubled industry remains too weak to help the economy.

Construction spending rose 0.4 percent in April, the Commerce Department reported Wednesday. The jump in spending on home improvements offset declines in single-family homes and apartment construction. And the slight gain followed a sharp downward revision to the March figures. The government said spending rose only 0.1 percent for the month, down from its initial estimate of 1.4 percent growth.

A separate report showed manufacturing activity grew at the slowest pace in 20 months. The Institute of Supply Management, a trade group of purchasing executives, said that its index of manufacturing activity fell to 53.5 in May from 60.4 in April. While it represented the 22nd month of expansion, it was the sharpest slowdown for the index since 1984. Any reading above 50 indicates manufacturing is expanding.

The weak data offered the latest evidence that the economy is hitting a second "soft patch" nearly two years after the recession officially ended. Stocks plunged after the reports were released. The Dow Jones industrial average fell more than 148 points in morning trading.

Overall spending on construction projects in April totaled a seasonally adjusted annual rate of $765 billion — just 0.5 percent above an 11-year low of $761 billion hit in February.

Analysts predicted it could be another four years before overall construction returns to what would be considered a healthy level with spending of around $1.5 trillion annually.

"The overall story here is that housing is hugely depressed, but it has probably hit bottom," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Builders pushed activity on private projects up 1.7 percent to a seasonally adjusted annual rate of $483 billion in April.

Residential spending rose 3.1 percent. But all of that strength came from spending on home remodeling. People are spending more to remodel rather than move to new homes in the current weak climate for housing. Construction of single-family homes dropped 1 percent in April and spending on apartment construction fell 0.1 percent.

Nonresidential construction rose 0.4 percent, though construction of offices, hotels and shopping centers all declined. The strength came from increases in spending on health care, schools and power plants.

Government construction projects dropped for a seventh consecutive month to a seasonally adjusted $282 billion annual rate. That was the lowest level since April 2007. Spending at the federal level fell 2 percent to $29.3 billion.

Spending on state and local projects fell 1.9 percent to $252.8 billion. Activity at this level is at the lowest point since December 2006. State and local governments have been cutting back on building projects as they deal with large budget deficits.