Construction spending up 0.8% in November, matching October rise

Favorable weather helped, but activity could soon cool

January 04, 2002|By BLOOMBERG NEWS

WASHINGTON - U.S. construction spending rose in November for the second straight month as work increased on schools, highways and sewer systems, according to government figures released yesterday.

Spending on construction rose a solid 0.8 percent during the month to an annual rate of $865.1 billion, the Commerce Department said. The November rise matched October's revised increase.

"Favorable weather permitted construction activity to continue at a fast pace," said Steven Wood, chief economist at FinancialOxygen Inc. in Walnut Creek, Calif. "However, construction fundamentals are deteriorating."

Housing may cool in coming months, reflecting an increase in 30-year fixed mortgage rates from November's record low, and commercial construction may fall as office vacancy rates rise.

"Because building activity has held up so well in this recession, it is unlikely to contribute very much to the subsequent recovery," Wood said.

Economists surveyed by Bloomberg News had expected construction spending to rise 0.2 percent in November to a rate of $865.2 billion, after a previously reported 1.9 percent surge a month earlier.

Among government-funded construction projects, spending rose 4.6 percent in November after rising 7.3 percent in October. Compared with November 2000, taxpayer-funded construction projects have increased 22.4 percent. Spending on highways and streets rose 3.9 percent in November.

Warm weather aided construction in November, the second-warmest in the 107-year history of statistics collated by the National Climatic Data center. Average temperatures were higher than normal in each of the 48 contiguous states.

Spending for commercial projects, including offices, factories and hotels, rose 0.5 percent in November, mainly reflecting a rise in school construction. Still, spending on commercial projects was 8.2 percent lower in November than in November 2000.

As the economy shrank at a 1.3 percent annual rate in the third quarter, the availability of factories, warehouses and other industrial sites increased, according to statistics from CB Richard Ellis, a real estate research firm in Los Angeles.

Robert Bach, director of research at property brokerage firm Grubb & Ellis, said office vacancy rates likely reached 14 percent of property space in the fourth quarter and would rise to 16 percent this year. That compares with 13 percent in the third quarter last year.

Industrial vacancies probably reached 8 percent in the final quarter and would increase to 9 percent by the middle of this year, he said. In the third quarter, industrial vacancy rates were 7.7 percent, Bach said.

Residential construction spending, which accounts for nearly half of construction outlays, fell 2.2 percent in November after rising 0.1 percent a month earlier. Construction of new single-family homes fell 0.3 percent in November, and spending on home improvements fell 6 percent during the month.

Still, spending on residential projects was 4.1 percent higher in November than a year earlier.

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