Construction spending for September 2010 was reported earlier this week by the U.S. Census Bureau and showed positive signs for residential building. Overall construction spending increased by 0.5% in September, up from a 0.2% decline in August. Analysts covering this report had called for a 0.5% decline, so the positive growth was both unexpected and welcomed. Year-over-year, September had a decline in construction spending of 10.4%, yet that was an improvement over August’s year-over-year decrease of 11.6%.
Residential construction spending increased by 1.8%, indicating a rise in new home starts. This segment of the construction industry suffered a 4.2% decrease in August, so September’s numbers were a big swing. As we’ve mentioned before, new home construction has a much larger trickle effect on the local economy than the sale of an existing home. Improvements in new home construction spending are therefore of greater significance to the overall health of the economy. Housing starts for August had been reported to have increased, so this report of actual construction spending is in line with this previous report.
On a side note, construction spending on public projects increased in September 1.3% following a 2.2% increase in August. These improvements are coming from various stimulus programs that are finally reaching the construction stage for public projects. While this may not directly indicate good news for the residential real estate market, any improvements in employment and wages generally provide a positive effect on home buying.
The only negative from the report came from nonresidential private sector construction which experienced a decline of 1.6%. Businesses are not yet showing a willingness to invest in new construction projects. High vacancy rates for commercial space is contributing to the declines in new construction as it is often cheaper and easier to take on existing vacant space than to build new facilities and offices.