Construction Spending Grows Significantly in Second Quarter

Thu September 04, 2003 - National Edition

WASHINGTON (AP) Spending on construction ventures around the United States increased in July to the highest level seen since the beginning of the year, a promising sign for the economy’s anticipated second-half rebound.

The Commerce Department reported Sept. 1 that the value of building projects under way clocked in at a seasonally adjusted annual rate of $879.8 billion in July, representing a modest 0.2 percent increase from June’s level.

Although July’s increase wasn’t as big as the 0.5 percent rise that economists were predicting, June’s performance turned out even better than the government previously estimated. Revised figures show that construction spending went up by a brisk 0.7 percent in June from May, compared with the 0.3 percent advance first estimated.

The $879.8 billion pace of construction spending in July marked the highest level since January, when such spending stood at $883.2 billion on an annualized basis.

Recent economic reports have flashed signals that the economy is healing and on track to stage a material rebound in the second half of this year. Consumers are spending, manufacturing appears on the mend and businesses are slowly boosting investment, although they are cautious about hiring.

”The long nightmare of double digit declines in private, nonresidential construction seems to have ended, but it is still a little early to say the upward climb had taken hold,’ said Ken Simonson, chief economist at Associated General Contractors of America.

Some economists believe economic growth in the final six months of this year will be in the range of around 3.5 percent to just over 4 percent. Others think it will be closer to a 5 percent pace. In either scenario, such a pace would be far better than the 2.3 percent growth rate seen in the first six months.

Against this backdrop, economists believe the Federal Reserve will probably hold a key short-term interest rate at a 45-year low of 1 percent when it meets next on Sept 16. At the Fed’s previous meeting in August, policy-makers not only held this rate steady but also hinted that it could stay there for some time.

Economists hope that low short-term interest rates and President George W. Bush’s third tax cut will motivate consumers and businesses to spend and invest more, thus lifting economic growth.

The construction spending report showed that spending by private builders on all types of projects rose by a solid 0.5 percent in July to a seasonally adjusted annual rate of $664.2 billion, the highest level since March.

Private builders saw gains in residential projects as well as communications and power facilities. Those gains were tempered by weakness elsewhere, including declines in spending on hotels and motels, and office buildings.

Spending by the government on big public works projects, meanwhile, dropped by 0.4 percent in July to a rate of $215.7 billion. The government cut spending on schools, highways and streets. That outweighed increased spending on other projects including public safety facilities and hospitals and other health-care buildings.