U.S. construction spending posted modest gains in April, driven by an uptick in home building and government construction that lifted total activity to the highest level in five years.
Construction spending rose 0.2 percent in April to a seasonally adjusted annual rate of $953.5 billion, the strongest performance since March 2009, the Commerce Department said Monday. The April increase was lower than economists had expected. But the government revised March activity higher to a 0.6 percent gain, up from an initial estimate of a 0.2 percent increase.
The small April improvement combined with the strong gain in March suggest that the construction industry is recovering from the harsh winter and will provide a boost to growth in the months ahead.
“This was mostly a good report,” IHS Global Insight economists Stephanie Karol and Patrick Newport said in an analyst note. “Core construction, the piece of the report which affects GDP, advanced 0.6 percent, the largest gain since December.”
The April figure marked the third straight increase after the weather pushed spending down 0.4 percent in January. Construction activity dragged the overall economy in the first quarter, when gross domestic product actually shrank.
The overall economy contracted at an annual rate of 1 percent in the January-March quarter. Analysts estimate growth to recover to a rate of around 3.8 percent in the April-June period. The expectation is that strong gains in hiring will help lift consumer spending. Other sectors, including construction, should also bounce back.
In April, residential construction edged up 0.1 percent. It was the lowest monthly gain since an outright decline last October. However, the small increase followed strong gains over the past five months and was enough to lift spending on housing to a seasonally adjusted $378.5 billion, the highest level since March 2008.
Spending on single-family-home construction was up 1.3 percent, while spending on apartment construction rose 2.7 percent. Only the remodeling sector, which accounts for 40 percent of the total, posted a decline, falling 2.2 percent.
Spending on non-residential projects fell 0.1 percent to an annual rate of $308 billion, with weakness in the communications industry, where activity dropped 11.7 percent. Spending on hotels, office buildings and shopping centers all showed gains.
Government construction spending rose 0.8 percent to a rate of $267 billion. This sector has been struggling because of budget cutbacks at all levels of government. In April, spending on federal projects rose 1.9 percent to a rate of $23.5 billion. Spending on state and local projects was up 0.7 percent to $243.5 billion.
Total construction spending is 8.6 percent higher than a year ago, led by a 17.2 percent increase in housing construction. Non-residential construction is up by 5.6 percent from a year ago, while government projects are just 1.2 percent higher.