Ahead of the Bell: US construction spending

US construction spending likely edged up in February, tempered by effects of a harsh winter

Associated Press
US construction spending up tiny 0.1 percent

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In this Friday, March 21, 2014, photo, a single family housing construction is underway in North Andover, Mass. The Commerce Department reports on U.S. construction spending in February on Tuesday, April 1, 2014. (AP Photo/Elise Amendola)

WASHINGTON (AP) -- The Commerce Department reports on U.S. construction spending in February. The report is scheduled for release at 10 a.m. EDT Tuesday.

TINY GAIN: The forecast is that construction spending will rise by a slight 0.1 percent, according to a survey of economists by data firm FactSet.

WINTER IMPACT: The severe weather has dampened construction activity, which also gained a slight 0.1 percent in January following a much stronger 1.5 percent gain in December.

The expectation is that as the weather warms up, construction will strengthen.

For January, the small increase reflected strength in housing construction which helped offset declines in nonresidential building and government projects.

Most economists are forecasting home sales and construction will improve further in 2014. They believe a strengthening economy will boost employment and the employment gains will provide the income gains needed to convince potential home buyers to take the plunge.

Most economists are looking for sales of new and existing homes to show improvement as the spring buying season gets into full swing. They expect pent-up demand to help sales following an unusually severe winter which depressed sales.

Housing, while still a long way from the boom of several years ago, has been recovering over the past two years.

Economists expect construction will rise further in 2014 although the pace of the increases are expected to slow.

Analysts are optimistic about further sales gains because they think the overall economy will strengthen this year as more people find jobs and last year's drag from higher federal taxes and government spending cuts eases.

One assumption underlying expectations on housing: Even as the Federal Reserve keeps scaling backs its bond purchases, which were used to keep long-term rates low, mortgage rates will rise only gradually this year.

In her first major speech as leader of the Federal Reserve, Chair Janet Yellen delivered a strong statement on her concerns about a labor market she said was still too weak. Even though the Fed has been gradually trimming its bond purchases, Yellen said the central bank still needs to provide significant support to the economy.

She said that the extraordinary support the Fed is providing will be needed "for some time," a view she said was widely held by other Fed officials.

Her comments lifted spirits on Wall Street where investors had been worried that remarks Yellen had made last month following a Fed meeting might indicate that the central bank could start raising a key short-term interest rate sooner than expected.

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