Construction spending grew 0.6 per cent compared to August when spending had fallen 0.1 per cent, the Commerce Department said Thursday.
The strength in September came from a 2.8 per cent rise in home building. Spending on commercial projects such as office buildings and shopping centres fell 0.1 per cent and spending on government projects was down 0.8 per cent, the third monthly decline.
The September increase pushed construction spending to a seasonally adjusted annual rate of $851.6 billion, 14.1 per cent higher than a 12-year low hit in February 2011. But even with the gain, construction is at roughly half the level considered healthy.
Although new homes represent less than 20 per cent of the housing sales market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.
Home builders started work on new homes and apartments at the fastest pace in more than four years in September. They also requested the most building permits in four years, a sign that many are confident that recent gains in home sales will continue.
New home sales in September jumped to the highest annual pace in the past two and a half years. Sales of previously occupied homes dipped in September but have risen steadily in the past year.
Home prices rose in August compared to July in 19 of 20 major cities tracked by the Standard & Poor's/Case Shiller index. Prices were up nationally by 2 per cent in August compared to August 2011, the third straight increase and faster than the July gain.
While the housing market has strengthened this year, the broader economy has lagged behind. The overall economy grew at an annual rate of 2 per cent in the July to September period. That was an improvement from 1.3 per cent growth in the April-June quarter but still too slow to make a significant improvement in unemployment.
The Federal Reserve in September said it would spend $40 billion a month to buy mortgage-backed securities to give a boost to home sales in hopes that it will support faster economic growth and stronger gains in the job market.