WASHINGTON – Builders began work on more office buildings, shopping centers and hotels in June, pushing construction spending higher for a third straight month. But even with the gains, activity remains at depressed levels.
Construction spending rose 0.2 percent in June to a seasonally adjusted annual rate of $772.3 billion, the Commerce Department reported Monday. That put overall spending just 1.2 percent higher than the 11-year low hit in March. It is just half of the $1.5 trillion pace considered healthy by most economists.
In June, residential construction declined, reflecting a big drop in apartment construction, and spending on government building projects also fell. But private nonresidential activity rose to the highest level since late 2010.
Analysts believe it could be another four years before construction returns to healthy levels as the effects of a severe recession and collapse in home building linger.
In June, private residential construction dropped 0.3 percent to a seasonally adjusted $235.8 billion with a 0.3 percent rise in single-family home building offset by a 2.8 percent drop in the apartment sector.
The 1.8 percent rise nonresidential construction pushed this sector to $257.7 billion, the highest level since December 2010 with a number of commercial projects including hotels, office building and shopping centers all showing gains.
Government building projects fell 0.7 percent to an annual rate of $278.9 billion, the lowest level since March 2007. Budget cuts at the state and local levels have led to a sharp drop in government spending. Analysts are concerned that the new deficit-cutting agreement that President Barack Obama reached on Sunday with House and Senate leaders will result in drops in federal spending that will further slow the overall economy.
Homes are now the most affordable they've been in years. But bargain prices and super-low mortgage rates have done little to boost sales. Economists say it could take several years before the housing market recovers.
Sales of new homes fell 1 percent in June to an annual rate of 312,000. That's less than half the 700,000 that economists say is typical in healthy markets. Last year was the worst for new-home sales on records dating back a half century and this year's sales are lagging behind last year.
Sales of previously owned homes fell for a third month in June and are also lagging behind last year's sales pace when 4.91 million homes were sold, the fewest since 1997. In a healthy economy, people buy roughly 6 million existing homes annually.
Analysts said the weakening job market and the uncertainty over foreclosures could lead to deeper price declines in the second half of the year. They estimate that prices will fall another 5 to 10 percent by year's end.