Originally created 12/02/99

Construction spending up in October



WASHINGTON -- Construction spending rose a solid 0.3 percent in October, largely reflecting a sharp increase in big government projects and a pickup in residential building.

The Commerce Department reported today that spending rose to a seasonally adjusted annual rate of $699.3 billion. That followed a revised 0.1 percent decline in total construction spending in September -- far off government expectations of a 0.5 percent increase.

October's performance was stronger than many analysts had expected. They were forecasting construction spending would fall by 0.1 percent.

Home building and other construction activity, driven by low mortgage rates, had been a key contributing factor to the strong economic growth in the early part of the year. But the pace of construction spending has shown signs of cooling as rising mortgage rates have put off prospective buyers.

The Federal Reserve has raised interest rates three times this year to slow the robust economy and keep inflation under control.

Many economists, citing concerns about possible problems that may arise from the Y2K computer changeover, expect Fed policy-makers to leave rates alone when they meet next on Dec. 21. However, given the strong continuing economic growth, many economists have raised their expectations that the Fed will boost rates again early next year.

The construction report showed that spending on all government projects led the increase in total spending, rising a sizable 2.5 percent to a seasonally adjusted annual rate of $161.6 billion. Spending on government housing and redevelopment, schools and other public buildings all showed gains.

Spending on all residential projects also rose in October, growing by 0.3 percent to a seasonally adjusted annual rate of $319.9 billion. Spending on single-family homes rose by a tiny amount, while spending on apartment construction fell, reflecting the impact of rising mortgage rates.

The value of all private construction projects, however, fell 0.4 percent in October to a seasonally adjusted annual rate of $537.6 billion. Spending on industrial buildings, office buildings, motels and hotels and educational projects all showed declines.

That marked the fourth consecutive monthly decrease in spending on private construction projects, something that hasn't happened since March-June 1995.

Builders in some parts of the country have experienced shortages of skilled workers and some building materials, which can delay or disrupt construction schedules.

On Tuesday, the Conference Board reported that consumer confidence surged in November, rising for the first time in five months, as Americans cheered the continuing strength of the economy and big gains on Wall Street.