Construction spending up but pace is still weak

By Martin Crutsinger AP Economics Writer WASHINGTON (AP) -- U.S. builders increased spending on homes, office buildings and other projects in August after a big decline in July. The gain is modestly good news for the economy, but it still left the construction industry far below levels considered healthy. Construction spending rose 1.4 percent in August, the Commerce Department said Monday. The increase followed a 1.4 percent drop in July, which had been the biggest setback in six months. Analysts noted that much of the increase stemmed from a jump in spending on government projects, such as roads and schools. But with many states and cities short of cash, gains of that size aren't expected to continue. And private construction is still not healthy. "The pickup in the pace of spending was ... not a sign of revival in private demand," said John Ryding, an economist at RDQ Economics, in a note to clients. Building activity reached a seasonally adjusted annual rate of $799.1 billion. That's 4.8 percent above an 11-year low hit in March. But it's barely more than half the $1.5 trillion pace considered healthy. Analysts say it could be four years before construction returns to healthy levels. A dismal outlook for housing and a weak economy have forced governments to cut back on building plans. Housing construction, in particular, has all but stalled. Americans bought fewer homes during this year's peak buying season than at any time in the past half century. With unemployment stuck above 9 percent, many people are fearful about buying a home out of concern they could lose their jobs or home prices could fall further. For August, private construction rose 0.4 percent. Residential building rose 0.7 percent after two months of declines. Both single-family and apartment construction showed increases. And nonresidential construction increased 0.2 percent, lifted by construction of office buildings, factories and transportation, communication and power projects. Year over year, construction spending rose compared with the previous August -- the first year-over-year gain in nearly four years. Steven Wood, an economist at Insight Economics, said that trend suggests the sector may be bottoming out. That said, construction spending is still 34 percent below its March 2006 peak, he added. ---------------- AP Economics Writer Christopher S. Rugaber contributed to this report. Published: Wed, Oct 5, 2011