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The New Economy

US construction spending rises, raising eyebrows

By / June 1, 2009

Construction crews were hard at work last month building condominiums in Portland, Ore. Overall construction spending saw an unexpected surge in the Commerce Department's latest report Monday.

Rick Bowmer/AP/File

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New construction spending rose an unexpected 0.8 percent in April, the largest increase since August and another sign that the slowdown in building may be easing.

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But the data may be presenting too rosy a picture, at least one economist warned.

The strength came in both the residential (up 0.6 percent on a seasonally adjusted annual rate) and nonresidential sectors (up 0.8 percent), the Commerce Department reported Monday. A consensus of economists expected a 1.6 percent decrease in overall construction spending for the same time period.

The biggest contributors to growth came from the residential sector itself and industrial construction projects in the communications, power, and manufacturing sectors.

Those figures are suspect, however, because they include a large 8.9 percent rise in spending on residential improvements, a volatile and unreliably reported part of the government survey, wrote Patrick Newport, an economist at IHS Global Insight, in a release. Excluding that category, overall construction spending actually fell 0.3 percent, he calculated.

Also, some of the unexpected jump in nonresidential construction is unsustainable in the months ahead, he argues, because the manufacturing sector won't keep boosting already outsize spending on refinery construction and lodging, another positive contributor in April, is already overbuilt.

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