Construction spending up 0.1 percent in May

WASHINGTON - U.S. construction spending barely increased in May as gains in spending on non-residential projects such as office buildings and public construction were largely offset by a big drop in home building.

Construction spending edged up 0.1 percent in May after a much stronger 0.8 percent April increase, the Commerce Department reported Tuesday. The back-to-back gain followed a period of weakness in which spending fell in both January and February and was flat in March.

The construction industry has struggled with an unusually severe winter which curtailed building activity in many regions.

Construction activity totaled $958.1 billion at a seasonally adjusted annual rate in May, up 6.6 percent from a year ago.

Economists are forecasting that housing and overall construction will regain momentum in coming months, helping to boost overall economic growth.

However, housing suffered a setback in April, falling 1.5 percent. Single-family home construction was down 1.4 percent while apartment construction dropped 0.6 percent. Overall, housing construction is up 7.5 percent from a year ago.

Non-residential construction rose 1.1 percent, led by a 4.3 percent rise in construction of power generating facilities. Construction of office buildings was up slightly but spending on hotels and the category that covers shopping centers both showed declines.

Spending on government projects rose 1 percent with a 2 percent jump in spending on state and local building projects offsetting an 8.9 percent decline in spending by the federal government on building projects.

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.