Construction Spending Up 7.1 Percent From 2011

Residential construction spending was positive from December to January, a good sign for builder confidence.

Construction spending posted a strong 7.1 percent year-over-year increase for the month of January, and though spending was mainly flat from December, it did show an uptick in residential construction.

Spending fell 0.1 percent from December to an annual rate of $827 billion, though private residential construction was up by 1.8 percent to an annual rate of $253.6 billion. Commercial spending, though (nonresidential construction as measured by the U.S. Census Bureau of the Department of Commerce) fell by 1.5 percent, a decline that offset residential increases.

Steven Wood, an economist at Insight Economics, said in a Washington Post story on the construction data that the numbers suggest a gradual recovery.

“Construction spending appears to be slowly climbing out of a very deep hole,” Wood said.

Bill McBride of Calculated Risk expressed similar sentiments, emphasizing that the year-over-year improvements in the data were particularly promising.

“The year-over-year improvement in private residential investment is an important change (the positive in 2010 was related to the tax credit), and it appears the bottom is in for residential investment,” McBride wrote.

On the public construction side, spending was down 0.2 percent from December, with educational construction spending leading the downward trend with a 0.9 percent decline. The gradual fall in public construction is most likely because of evaporating funds from 2009’s stimulus package.

In the end, though, the residential statistics are the true takeaway from the Census Bureau’s data, and it will be interesting to see where builder confidence – which rose for the fifth consecutive month in February – stands when the NAHB releases its next housing market index in the next few weeks.

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