Ahead of the Bell: Construction Spending

Associated Press

WASHINGTON (AP) — U.S. construction spending likely increased in June, helped by further gains in home construction.

Economists expect a 0.3 percent rise in construction spending in June, according to a survey by FactSet. The Commerce Department will release the report at 10 a.m. Eastern time Wednesday.

In May, construction spending increased 0.9 percent to a seasonally adjusted annual rate of $830 billion. The annual rate of spending is 11.3 percent above a 12-year low hit in February 2011. Still, the level of spending is about half of what economists consider to be healthy.

The construction industry is showing signs of improvement while other parts of the economy have slumped.

Spending has been increasing in the private sector for both residential and non-residential projects. But the government sector is struggling as the federal government and state and local governments face spending constraints stemming from the need to deal with sizable budget deficits.

In a sign of a slight rebound in housing after a prolonged period of weakness following the boom years of the last decade, a closely watched index of home prices showed price gains in every major city in May versus April. The Standard & Poor's/Case-Shiller home price index showed increases in all of the 20 cities tracked with the biggest monthly gains being posted by Chicago, Atlanta and San Francisco.

The housing recovery is still viewed as slow and uneven. Sales of new homes fell in June after hitting a two-year high in May. Sales of previously occupied homes also fell in June but activity was still higher than a year ago.

Builders are gaining confidence, partly because they are seeing more interest from potential buyers. Builders started construction on the most new homes and apartments in four years in June.

Despite the modest gains in housing, the broader economy has weakened in recent months. Employers have added an average of only 75,000 jobs a month in the April-June quarter. That is much lower than the average of 226,000 added in the first three months of this year.

Economic growth slowed to an annual rate of just 1.5 percent in the April-June quarter, the government reported last week. That was even weaker than the 2 percent growth rate in the first three months of the year.

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