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US construction spending drops

February 02, 2010 | "Barron’s Econoday"

The construction sector is still mired in contraction based on recent construction outlays. Overall construction spending for December dropped another 1.2 percent, following a revised decrease of 1.2 percent in November. The latest number was worse than the consensus forecast for a 0.5 percent decline. Weakness in December was led by decreases in private residential spending and by public outlays.

Reflecting a recent weakening in housing starts, private residential spending dropped 2.8 percent after a 1.4 percent fall the month before. The December decline was in the multifamily component which fell 4.4 percent as new single-family outlays rose 0.6 percent. Public outlays decreased 1.2 percent, following a 1.2 percent decline in November. Private nonresidential outlays made a partial rebound of 0.2 percent after a 0.9 percent drop in November.

On a year-ago basis, overall construction outlays improved to minus 9.9 percent in December from minus 12.0 percent the previous month.

The economy cannot count on a rise in the tapping of hammers on rooftops and the roar of bulldozers for growth engines for now. Construction appears to remain in recession. However, the markets are paying more attention to the rise in the ISM manufacturing index, adding modestly to earlier gains.

Market Consensus Before Announcement

Construction spending for November fell 0.6 percent, following a decline of 0.5 percent the month before. In the latest month, private residential spending fell 1.6 percent, public outlays dipped 0.4 percent, and private nonresidential outlays were flat. Analysts are a expecting broad-based decline for December due in part to unseasonably bad weather. A dip in starts in December should tug down on residential outlays. High vacancy rates and tight credit continues to weigh on multifamily construction and nonresidential outlays.

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