Image: Construction worker
Seth Perlman  /  AP
Weakness in nonresidential building and government projects offset the best showing for home building in 10 months.
updated 9/1/2009 10:38:18 AM ET 2009-09-01T14:38:18

Construction spending edged down slightly in July as weakness in nonresidential building and government projects offset the best showing for home building in 10 months.

The Commerce Department said Tuesday that construction spending dipped 0.2 percent in July, worse than the flat reading that economists had expected. The drop followed a small 0.1 percent rise in June.

The July decline occurred even though construction of homes and apartments rose by 2.3 percent in July. It was the best showing in that indicator since last September and further evidence that the nation’s long housing slump may finally be bottoming out.

Even with the rise in July home building, residential construction is still 27.8 percent below where it was a year ago. However, the increase was further evidence that the beleaguered housing sector could be staging a comeback after a severe collapse which helped push the country into a prolonged recession.

The problems in construction are not confined to housing though. Now developers of other projects from shopping centers to office buildings are facing troubles as banks tighten up on lending standards in the face of rising loan defaults in the commercial real estate area.

In July, nonresidential construction fell by 1.2 percent, the third straight monthly decline. The weakness in July was led by a big fall in spending on hotels and motels with office construction and spending on shopping centers also down.

Spending on government construction projects dropped by 0.7 percent, the first decline in this area since a 1.7 percent fall in January. The setback here was a surprise to economists who had expected government works spending to keep increasing because of support from the $787 billion economic stimulus bill approved by Congress in February.

In July, federal construction activity did rise by 0.8 percent but state and local spending fell by 0.8 percent, possibly reflecting the severe budget strains on many local and state governments from the nation’s recession.

The construction industry has been one of the hardest-hit sectors in the current recession, a downturn that occurred after a five-year boom in housing came to an end. However, in July, sales of existing homes rose 7.2 percent, the largest increase in at least 10 years, and sales of new homes were also up sharply, rising by 9.6 percent to the strongest sales pace since last September.

Home sales have been helped by a government program that is giving first-time home buyers a tax credit of 10 percent of the purchase price of the home up to $8,000. That program is due to expire Nov. 30 but builders and real estate agents are pressing Congress to extend the tax credit, warning that if the program is not extended sales could slump again.

Luxury homebuilder Toll Brothers Inc. reported in August that it had seen the first annual increase in home purchase contracts in four years in its just completed third quarter and that the current quarter began with 26 percent more buyers putting down deposits for homes than a year ago.

DR Horton Inc., another big homebuilder, reported last month that it had posted a narrower quarterly loss than the previous year. DR Horton said it expected to have a better performance in 2010 than in 2009 although it said builders were still facing a tough environment with record home foreclosures, rising unemployment and tighter mortgage lending requirements.

Construction spending totaled $958 billion in July at a seasonally adjusted annual rate, the lowest level since February of 2004.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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