Construction spending dropped 0.4 per cent in September compared to August when spending fell 0.5 per cent, the Commerce Department reported Monday.
After four straight monthly declines, housing construction edged up 0.4 per cent in September but nonresidential building fell 0.6 per cent with weakness in construction of hospitals, power plants and factories. Government construction was also down, falling 1.3 per cent as spending on projects at the federal and state and local levels declined.
The overall declines in the past two months were disappointing but economists say the weakness will be temporary. They are looking for construction activity to support economic growth in coming months.
The September drop pushed construction spending down to $950.9 billion at a seasonally adjusted annual rate, still a modest 2.9 per cent higher than the level a year ago.
The increase in housing reflected a solid 1.1 per cent gain in construction of single-family homes which helped offset a 1 per cent drop in the smaller apartment sector. Residential construction, which had fallen for four straight months, now stands at a seasonally adjusted annual rate of $349.1 billion, a slight 0.7 per cent higher than a year ago.
The decline in government activity reflected a 0.3 per cent drop in spending at the federal level and a 1.4 per cent decline in spending at the state and local levels. Government construction activity has been squeezed by tight budgets reflecting the severe 2007-2009 recession and the weak economic rebound since that time.
The overall economy grew at an annual rate of 3.5 per cent in the July-September quarter, a solid performance but slower than the 4.2 per cent growth spurt in the April-June period.
Residential construction expanded at a 1.8 per cent rate in the third quarter, a slower pace than the 8.8 per cent rate of gain in the spring. Business spending on structure also slowed to growth at a 3.8 per cent rate, down from a 12.6 per cent jump in the spring.
The expectation is that further gains in construction will help support growth this quarter and into next year. Many economists are looking for the economy to grow at a 3 per cent rate in the final three months of this year and average 3 per cent in 2015 as well. If that forecast comes true, it would mean that 2015 will be the strongest year for economic activity since the economy grew 3.3 per cent in 2005, two years before the start of the Great Recession.