US construction spending down 0.3 pct. in November; government building activity leads decline

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WASHINGTON — A sharp slowdown in government-built schools and infrastructure caused U.S. construction spending to fall slightly in November.

The Commerce Department said Friday that construction spending slipped 0.3 percent in November, after having climbed an upwardly revised 1.2 percent in October and 0.6 percent in September.

Much of the decline came from a 1.7 percent retreat in government expenditures. Publicly-built school spending fell 2.5 percent, while the transportation, health care and public safety sectors also fell.

Private construction spending rose a modest 0.3 percent in November. Home-building climbed 1 percent in November, offsetting the declines in the office, commercial and health care-related construction.

Total construction spending has improved a mere 2.4 percent from a year ago to $974.9 billion.

Construction activity has lagged broader economic growth for much of 2014, hampered by limited gains in homebuilding. Few potential buyers can afford new homes, a reflection of meager wage growth, tight credit standards and builders focused on pricier housing developments that are beyond the financial reach of most home-seekers.

Residential construction spending declined 0.5 percent over the past 12 months to $352.7 billion, although solid gains in the past two months suggest that homebuilding activity likely helped economic growth in the final quarter of 2014. Analysts at the bank Barclays projects that annualized growth in the October-December quarter will be 2.8 percent, a solid increase but down from an annualized gain of 5 percent in the third quarter.

Modest buying activity has dissuaded builders from breaking ground on more homes. Sales of new homes dropped 1.6 percent in November to a seasonally adjusted annual rate of 438,000, the Commerce Department said in a recent report. That second straight monthly decline leaves home construction significantly below the annual rate of 700,000 that was common in the 1990s.

Still, broader economic growth should help to bolster construction. Employers have added 2.65 million jobs through the first 11 months of 2014, the most in 15 years. Each new paycheck helps to increase consumer spending, even though average wages have yet to meaningfully outpace inflation. The job gains have accompanied faster economic growth during the second and third quarters of 2014.

"As the labor market continues to show improvement and wages increase, especially for young adults, we expect the pace of single-family building to pick up this year," said Anika Kahn, a senior economist at Wells Fargo.

Architectural firms have reported increased demand for the past seven months, a sign that construction spending could accelerate in 2015.

The American Institute of Architects reported that its November billings index was 50.9 in November. While that's down from 53.7 in October, any score above 50 signals increased activity. Demand for apartment and condominium complexes has contributed to the increase, while more than five years after the Great Recession ended, local and state governments are restarting delayed building projects.

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