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Published: Tuesday, 5/1/2012

Construction spending edged up slight 0.1 percent in March after 2 months of declines

BY MARTIN CRUTSINGER
AP ECONOMICS WRITER

WASHINGTON — U.S. builders barely increased their spending on construction projects in March after two straight months of declines. A pickup in single-family home construction and commercial projects offset a steep drop in state and local government building.

The Commerce Department said Tuesday that construction spending ticked up 0.1 percent.

The small March gain left construction spending at a seasonally adjusted annual rate of $808.1 billion. That's 6 percent above a 12-year low of $762.6 billion hit last March. Still, the level of spending is roughly half of what economists consider to be healthy.

"The weakness in construction spending in March was entirely in public spending," said John Ryding, an analyst at RDQ Economics, in a note to clients.

Still, even with the increase in private construction spending, the trend over the last three months is weak, Ryding noted.

"We look for some gradual improvement in private construction spending in 2012, but structures investment is not a material factor in our growth forecast for this year," he said.

Government construction activity fell 1.1 percent to the slowest pace since February 2007, the report said. Spending by state and local governments dropped to the weakest level since November 2006, while spending by the federal government rose 3.8 percent to a rate of $28.9 billion.

Spending on private nonresidential projects rose 0.7 percent. Work on office buildings, hotels and transportation projects rose. Spending in the category that includes shopping centers fell.

Private residential activity rose 0.7 percent. The increase was driven by more construction of single-family homes.

Even with the games, home construction continues to slump five years after the housing bubble burst. Sales of new homes fell 7.1 percent in March, the largest decline in more than a year.

Though new-home sales represent less than 10 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.

A key reason for weak sales in the new-home market is that builders must compete with foreclosures and short sales. Short sales occur when lenders allow homes to be sold for less than what's owed on the mortgage.

The pace of foreclosures is rising now that states have reached settlements with the nation's five biggest mortgage lenders over foreclosure abuses. Builders have stopped working on many projects because it is hard to get financing and to compete with cheaper resale homes.

Business spending on construction projects, such as office buildings and shopping centers, also is sluggish. The government reported last week that it fell in the January-March quarter, the second consecutive quarterly decline.

The economy grew at an annual rate of 2.2 percent in first quarter. Stronger consumer spending offset slower business investment and less growth in government spending.

Economists expect construction spending to remain sluggish this year. Tighter credit could keep businesses from receiving loans for building projects. And lawmakers are likely to keep pressure on government spending, which could hamper public works projects.



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