Ahead of the Bell: US construction spending

US construction spending expected to grow at slightly faster pace in May

Associated Press
US construction spending up 0.1 percent in May

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In this Friday, May 16, 2014 photo, cranes fill the skyline at the Brickell CityCentre construction site located in the center of the Brickell financial district in downtown Miami. The project is mixed use office, residential, hotel, retail and entertainment space. The Commerce Department reports on U.S. construction spending in May on Tuesday, July 1, 2014. (AP Photo/Lynne Sladky)

WASHINGTON (AP) -- The Commerce Department reports on construction spending for May. The report will be released at 10 a.m. Tuesday.

CONSTRUCTION UP: The forecast is that construction spending increased 0.4 percent in May, according to a survey of economists by FactSet.

RECENT GAINS: In April, spending rose by a smaller 0.2 percent, but the increase was enough to boost activity to the fastest pace in five years.

The recent gains suggest that the construction industry is recovering from a harsh winter and will provide a boost to growth going forward.

Winter weather pushed activity down 0.4 percent in January. A slump in construction in the winter contributed to the economy shrinking at an annual rate of 2.9 percent in the January-March quarter, the biggest decline since the first quarter of 2009 during the depths of the Great Recession.

The sharp downturn reflected not just bad weather but a decision by businesses to slow restocking of empty shelves and trim their capital spending on equipment. Additionally, the trade deficit widened in the first quarter, which also held economic activity back.

But analysts believe all of those developments were temporary and will be reversed in the current April-June quarter.

They had been expecting a rebound to growth as high as 4 percent in the second quarter, but disappointing results so far in consumer spending have caused them to trim back their forecasts, with many now looking for growth of around 3 percent, still a significant improvement from the sharp contraction in the first quarter.

Sales of both new and existing homes showed gains in May, providing evidence that housing is regaining lost momentum following a weak second half of last year when sales were hurt by a rise in mortgage rates and the lack of adequate supplies of new homes and then a harsh winter, which dampened demand further.

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