Construction spending jumped 1.9% in Nov. Unexpected growth was highest since March '96

THE BALTIMORE SUN

WASHINGTON -- U.S. construction spending unexpectedly rose in November at the fastest rate since March of last year, in yet another sign the economy is heading into the new year on a firm footing, the government reported yesterday.

Spending increased 1.9 percent to an annual rate of $592.0 billion in November, the Commerce Department said. In October, spending rose a revised 1.5 percent, initially reported as a 1.8 percent gain, reflecting growth in nearly all major categories. Analysts expected a 0.4 percent drop in construction spending.

Even though yesterday's report suggests the economy grew at a faster pace in the last three months of the year than the third quarter's 2.1 percent annual rate, that doesn't mean U.S. central bankers are poised to raise interest rates.

"This adds yet another log to the fire that you'll get 3 percent or better growth in the fourth quarter," said Cary Leahey, senior economist at Lehman Brothers in New York. Even so, the Federal Reserve probably won't move at its next policy meeting on Feb. 4-5, Leahey said. "We really need to see consumer spending follow through before that happens."

The report showed outlays for public projects -- from schools to roads -- rose 2.5 percent to a $150.3 billion pace. Spending on private, nonresidential projects surged 1.6 percent to $152.3 billion. And residential construction outlays rose 1.2 percent to $247.6 billion in November as mortgage rates fell.

The report showed single-family home construction decreased 0.3 percent, while spending on multifamily homes rose 5.6 percent during the month.

Still, individual builders expect to see strong demand for houses throughout the new year. "I am more optimistic today than I was earlier last year," said Robert J. Strudler, chairman and chief executive officer of Houston-based U.S. Home Corp. "Stability of interest rates will provide reasons to be optimistic about '97. Demand numbers may not be stronger than in 1996, but it is still an attractive market."

Other recent indicators show continued strength in housing. Earlier this week, the Commerce Department reported new home sales unexpectedly rose 14.2 percent in November as all regions of the country reported increases. The jump in new home sales also corresponded with a 1.8 percent rise in sales of existing homes in November, the first increase in six months and the result of a steady decline in mortgage rates since early September, industry analysts said.

The average rate on a 30-year fixed loan dropped to 7.62 percent in November from 7.92 in October, putting the average principal and interest payment on a $100,000 loan at $707.45, according to Bloomberg analysts.

New home sales in 1996 are on a path to beat 1995 by 12 percent, according to the National Association of Home Builders.

Pub Date: 1/04/97

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