10/22/2013 10:06 EDT | Updated 01/23/2014 06:58 EST

US construction spending increases 0.6 per cent in August to highest level in more than 4 years

WASHINGTON - Spending on U.S. construction projects rose at a solid pace in August, helped by further gains in residential building. Overall construction activity climbed to the highest level in more than four years.

Construction spending increased 0.6 per cent in August compared with July when spending increased a strong 1.4 per cent, the Commerce Department reported Tuesday. The July gain was revised to show an increase that was more than double the initial estimate.

Total construction rose to a seasonally adjusted annual rate of $916.1 billion, the fastest pace since April 2009. The strength in construction should help the overall economy, which has been struggling this year with the adverse effects of government tax increases and spending reductions.

The August gain reflected a solid rise in housing activity, which was up 1.2 per cent. The housing increase included a 1.6 per cent rise in single-family construction and a 3.2 per cent increase in the smaller apartment sector.

Non-residential construction rose a slight 0.1 per cent in August after a much stronger 3.7 per cent July advance. In August, there were solid gains in office building and motel and hotel construction but the category that includes shopping centres fell.

Spending on government projects rose 0.4 per cent, reflecting a 0.8 per cent increase in state and local government activity. That offset a 3.8 per cent drop in spending on federal projects, which fell to their lowest level since June 2008.

The construction report had been scheduled to be released on Oct. 1 but was delayed because of the 16-day partial government shutdown.

Total construction is 7.1 per cent higher than a year ago with residential activity up 18.7 per cent, nonresidential up 4.3 per cent and government construction activity down 1.8 per cent from a year ago.

The housing rebound that began in 2012 has helped drive economic growth and create jobs in construction. But mortgage rates are nearly a full percentage point higher than the spring, an increase that began in May when the Federal Reserve first signalled that it might slow its $85 billion in monthly bond purchases.

However, at its Sept. 18 meeting, the central bank decided to keep its pace of bond purchases unchanged after lowering its outlook for economic growth. Mortgage rates have retreated a bit since that announcement. Economists are hoping that the housing recovery will keep moving forward given that even with the summer increase in rates, mortgages still remain near historic lows.

Sales of new homes rose in August by 7.9 per cent, rebounding after a 14.1 per cent drop in July. August also marked the best month for sales of previously occupied homes in more than six years, an annual level of 5.5 million homes. And homebuilders remain more confident in the market than they have been in eight years.

The housing market has been one of the strongest performers this year in an otherwise sluggish economy.