Construction spending falls, manufacturing recovers in May

Construction spending falls, manufacturing recovers in May

By Derek Kravitz

WASHINGTON — Builders began work on fewer projects in May, but U.S. manufacturing activity recovered somewhat in June from a sharp slowdown in May.
The Commerce Department says construction spending declined 0.6% in May to a seasonally adjusted annual rate of $757.9 billion. It is barely above an 11-year low hit in February and roughly half the $1.5 trillion pace considered healthy by most economists. Analysts say it could be another four years before construction returns to healthier levels.

Home construction fell 2.1%. But much of the decline was because an equal decline in apartment building, which can be volatile.

Government projects fell 0.8% to a seasonally adjusted $276 billion annual rate. It was the eighth consecutive monthly decline and it dropped government spending to its lowest level since April 2007.

State and local governments accounted for all the declines. They fell 1.2% to $246.6 billion. Activity at this level is at the lowest point since December 2006. State and local governments have been cutting back on building projects as they deal with large budget deficits.

Spending at the federal level rose 2.1% to $29.6 billion.

Building on private projects fell 0.4% to a seasonally adjusted annual rate of $477 billion in May.

Residential spending fell 2.1%. Construction of single-family homes dropped 0.3% in May and spending on apartment construction fell 2.1%.

Homeowners are renovating their houses rather than moving. Builders are struggling to compete with a wave of foreclosures that are forcing down prices of previously occupied homes.

Older, re-sold homes are a comparative bargain and in great supply.

The median price for a previously occupied home in May was $166,500. New homes are about $56,100 higher, or nearly 31%. The gap is largely due to the flood of foreclosures and short sales, when lenders accept less than what's owed on mortgages.

The factory sector has had a small recovery, growing now for 23 straight months.

The Institute for Supply Management, a trade group of purchasing executives, says that its index of manufacturing activity rose to 55.3 in June from 53.5 in May, the slowest growth in 20 months.

A reading above 50 indicates that the manufacturing sector is expanding.

In June, new orders for goods and employment picked up again.

Growth had slowed sharply in May. High gas prices cut into consumer spending and an auto parts shortage stemming from Japan's March 11 earthquake.