- The Washington Times - Tuesday, May 5, 2009

Aided by rising activity on commercial and government projects, total construction spending increased in March for the first time in six months. But the 0.3 percent advance was slight and, in any event, analysts do not expect it to be sustainable.

Spending on residential construction continued to plunge in March, although not steeply enough to completely offset the construction gains elsewhere, the Commerce Department reported Monday.

Single-family home construction plummeted 8.6 percent in March following a record decline of 11 percent in February. It was the 37th consecutive monthly drop. Residential construction spending was off 33.3 percent compared with March 2008.

Even so, analysts have begun to detect signs of tentative stabilization in the nation’s long-hammered housing market. “Going forward, the monthly drops will get smaller,” said Patrick Newport, U.S. economist for IHS Global Insight. “Single-family housing starts, which have not changed in three months, are nearing a bottom - if they have not bottomed out yet.”

Analysts also pointed to the 3.2 percent increase in Pending Home Sales Index for March, which the National Association of Realtors released Monday.

“A bottom in home sales is becoming more visible as improved affordability and government incentives draw potential buyers back into the market,” said Ryan Sweet, an economist at Moody’s Economy.com.

But analysts were not optimistic that total construction spending will continue rising in the near future.

“March’s [construction] gains were likely from ongoing projects that were started when the outlook was brighter than it is today,” Mr. Newport said. The gains in nonresidential construction occurred in sectors that have been overbuilt, including commercial buildings, educational buildings and manufacturing, Mr. Newport added. Therefore, he concluded, “these gains are unsustainable.”

The March gain “is not likely to stick,” agreed Anika Khan, an economist at Wachovia Economics Group. Nonresidential construction spending “will likely post declines well into 2010,” she said.

Construction spending on public projects will benefit from the $787 billion economic stimulus package that President Obama signed into law in February. “Increased infrastructure spending will boost this sector in the future, but it will take time before these projects dent the numbers,” Mr. Newport said. In the near term, he warned, public construction spending “is also headed for rocky shores because state budgets are strained.”

Last week’s advance report on the nation’s gross domestic product in the first quarter reported that business spending on structures - including factories, warehouses, hotels, shopping malls and office buildings - plunged at a record annual rate of 44 percent. The unexpected 2.7 percent rise in March private nonresidential construction spending means that estimate will be revised “upwards” to a decline of 38 percent, Mr. Sweet of Mood’s Economy.com calculates.

For the second quarter, Moody’s is still forecasting a drop in business investment in structures “close to 25 percent, owing to both a weak economy and tight financial conditions,” Mr. Sweet said.

Total construction spending was down 11.1 percent from March 2008.

Since June 2007, the construction industry has shed more than 1.2 million jobs, including more than 650,000 over the past six months.

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