Spending on construction projects around the country surged in March, registering the best month on record, new evidence that the economic recovery is building upon a solid foundation.
The Commerce Department reported Monday that the value of buildings put in place jumped by 1.5 percent in March from February to a seasonally adjusted annual rate of $944.1 billion, the highest level on record.
The performance was three times bigger than the 0.5 percent increase that some economists were calling for and the gains were fairly broad based. The report also provided further evidence that the construction and housing market in the United States are in good shape. The value of residential projects being worked on by private builders clocked in at an annual rate of $507.2 billion in March, also an all-time monthly high.
The 1.5 percent increase in total construction spending for March came after a modest 0.4 percent rise in February, according to revised figures. That was better than the 0.1 percent dip previously reported for February. January’s figure also was revised to show a 0.4 percent drop in spending, not as deep as the 0.8 percent decline previously estimated.
The economy grew at a healthy 4.2 percent annual rate in the January-to-March quarter of this year. Economists believe business growth will be even better in the current quarter, with estimates in the range of around a 4.5 percent to 5 percent pace.
Although the economic recovery is gaining traction, the labor market — which has shown improvements — needs to build on those and get stronger, economists say.
Against that backdrop, Federal Reserve Chairman Alan Greenspan and his colleagues are widely expected Tuesday to hold a key short-term interest rate at 1 percent, where it has been since last June. Greenspan recently told Congress that ultra-low short term rates, now at a 46-year low, must rise at some point to keep inflation in check, but he didn’t say when that might be.
A growing number of economists believe the Fed will begin to raise rates this summer. Some, however, don’t think rates will move higher until 2005.
The 1.5 percent increase in construction spending in March marked the largest monthly gain since a 1.6 percent advance posted in July 2003.
The strength in March not only represented brisk spending by private builders on residential and other projects but also stronger investment by government on public works. Spending by state and local governments on construction projects rose to a rate of $205.1 billion in March, also the highest monthly level on record.