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Builders step up spending for 5th straight month

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POSTED February 2, 2012 8:48 p.m.

WASHINGTON (AP) — Builders increased their spending in December for the fifth consecutive month, ending a weak construction year on a hopeful note.

Spending on construction projects rose 1.5 percent in December after a revised 0.4 percent gain in November, the Commerce Department said Wednesday That pushed spending to a seasonally adjusted annual rate of $816.4 billion, the highest level in 20 months.

The gains coincide with other signs that show the troubled housing industry may be improving. Homebuilders are more confident after seeing more interest from would-be buyers. Single-family home construction rose in the final three months of last year. And home sales ticked up at the end of last year.

Still, spending on all construction projects for 2011 was just $787.4 billion. That's 2 percent lower than the previous year and roughly half the level economists consider healthy. Last year was the worst year on record for single-family home construction, according to government data released last month.

Analysts say it could be years before the industry returns to full health.

Residential construction rose 0.8 percent in December on the strength of single-family homes. Nonresidential building jumped 3.3 percent, led by factory construction. Government spending rose 0.5 percent.

Builders broke ground on more homes in each of the last three months of last year. The increase in residential construction contributed to annual growth of 2.8 percent in the October-December quarter.

Still, residential construction fell at an annual rate of 1.4 percent last year, the sixth straight year of decline. The economy expanded just 1.7 percent last year, roughly half the growth rate in 2010.

The construction industry was hit hard by the housing bust and has had trouble recovering since the recession ended more than two years ago.

Severe budget problems have squeezed state and local governments. The federal government has come under pressure to control soaring budget deficits. Both have put pressure on government construction spending.

Private builders haven't fared much better. While their spending increased, they have scaled back on construction plans and are working from depressed levels.

Residential construction in December rose to a seasonally adjusted $241.2 billion, 4.9 percent higher than a year ago. The strength in December came from a 1.5 percent rise in single-family construction. Apartment building dropped 0.3 percent.

Nonresidential building increase pushed that sector to a seasonally adjusted annual rate of $288.5 billion, 11.4 percent above the December 2010 level. Strength in December came from gains in factory construction, power plants and communication. Those increases helped to offset declines in hotel construction and office building.

Spending on government projects increased to $286.6 billion, a figure that was 2.5 percent lower than December 2010. For December, state and local building activity rose 0.5 percent while the federal government saw construction spending increase 0.3 percent.

About 302,000 new homes were sold last year, making 2011 the worst sales year on records dating back to 1963. That coincides with a report last month that said 2011 was the weakest year for single-family home construction on record.

Still, sales of new homes rose in the final quarter of 2011, as did sales of previously occupied homes. Homebuilders are slightly more hopeful because more people are saying they might consider buying this year. And mortgage rates have never been cheaper.

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