Construction Spending Exceeds Expectations

Spending on U.S. construction projects is holding up better than expected, thanks to outlays on office buildings, lodging and power plants, but it is likely to falter in the coming months.

U.S. construction spending fell at a seasonally adjusted 0.6% annual rate in November to $1.078 trillion, the Commerce Department said Monday, following a revised October decline of 0.4% that was smaller than originally reported.

Residential spending fell at a 4.1% rate in November to $336.3 billion, 22.8% lower than November 2007. Despite the credit crunch and worsening economy, nonresidential spending showed surprising resilience, rising 1% during the month to $742.1 billion, up 9.2% from the previous year.

Outlays increased for power plants, roads, public-safety facilities, hotels and office buildings, but economists say the boost will be fleeting as new investments dry up.

Wachovia Corp. economist Anika Khan said rising oil prices in the first half of 2008 spurred construction activity at power plants and some manufacturers, but that is expected to reverse as those industries now grapple with sharply lower oil prices and weak customer demand.

Public construction spending rose 1.4% in November to $322 billion, another bright spot, although the U.S. recession is hurting governments' tax revenues. Expected declines there stemming from budget cuts could be offset later this year by a stimulus plan aimed at funding government construction projects.