US construction spending rushes to record high in November

WASHINGTON (Reuters) – U.S. construction spending reached a record high in November, driven by a robust housing market amid historically low mortgage rates, which could help to mitigate some of the impact on the economy of COVID infections- 19.

The Commerce Department said on Monday that construction spending increased 0.9% to $ 1.459 trillion, the highest level since the government started tracking the series in 2002. The October data was revised to above to show that construction spending accelerated 1.6% instead of 1.3%, as previously published.

Heavy construction spending supports economists’ predictions that the economy grew at an annualized rate of 5% in the fourth quarter. The sharp drop of a record 33.4% in the third quarter reflects a resurgence in coronavirus cases, which affected the service sector.

Growth is also slowing after the exhaustion of more than $ 3 trillion in government pandemic aid and delays in approving another rescue package. Nearly $ 900 billion in fiscal stimulus was approved in late December.

Construction spending represents about 5% of gross domestic product.

“The data implies a modest upside risk for our GDP growth forecast of a 4.3% rate in the fourth quarter,” said Mike Englund, chief economist at Action Economics in Boulder, Colorado. “The housing boom is raising construction activity in general … despite some stagnation in real estate data related to transactions in recent months.”

Economists polled by Reuters had predicted that construction spending would rise 1.0% in November. Construction spending increased 3.8% on a year-on-year basis in November.

Spending on private construction projects increased 1.2%, driven by investment in the construction of single-family homes amid record mortgage rates and a pandemic-driven migration to suburbs and sparsely populated areas. This followed a 1.6% advance in October.

Spending on residential developments increased 2.7%, after rising 3.2% in October.

But spending on non-residential construction, such as drilling for oil and gas wells, fell 0.8% in November. The pandemic depressed prices, leading to a contraction in spending on non-residential structures in the third quarter. The fourth consecutive quarterly decline in investment in non-residential structures resisted a recovery in overall business investment.

Spending on public works decreased 0.2% in November, after an increase of 1.6% in October. State and local government spending increased 0.1%, while federal government spending fell 4.2%.

“Public and non-residential buildings remain subdued due to weak demand related to virus contention interruptions as well as budgetary constraints,” said Rubeela Farooqi, chief economist at High Frequency Economics in White Plains, New York.