WASHINGTON - U.S. construction spending unexpectedly fell 0.4 percent in November from a record the previous month as sales of new homes tumbled and wet weather delayed projects, a government report showed yesterday.
The $1.013 trillion pace came after a revised 0.3 percent October gain that was higher than first reported, the Commerce Department said. Spending at an annual rate topped the trillion-dollar mark for the first time in July.
Homebuilding carried the U.S. construction market in 2004 as mortgage rates held near record lows, driving spending to records in nine of the 11 months through November. Some economists expect an improved labor market to bolster housing demand this year, even as the Federal Reserve lifts interest rates to control inflation.
"Construction of all types is strong, particularly given that November was a month in which the weather did not cooperate," Neal Soss, chief economist at Credit Suisse First Boston in New York, said in an interview.
The month was the fifth-wettest November in U.S. history, according to the National Oceanic and Atmospheric Administration. Its records date to 1895.
Construction spending was expected to increase 0.4 percent.
Private residential construction dropped 0.4 percent in November to an annual rate of $554.7 billion.
Sales of new homes fell 13 percent in November, the biggest drop in almost 11 years, the Commerce Department said Dec. 23. The National Association of Realtors still expects a record 1.18 million sales for 2004, slowing to 1.13 million this year.
Private residential construction, which accounts for more than half of all U.S. construction spending, was boosted in 2004 by the second-lowest mortgage rates in history, according to Freddie Mac. Rates for a 30-year fixed-rate mortgage averaged 5.84 percent last year, one basis point above the 2003 record.
"I do think we have peaked," said David Lereah, the Realtor association's chief economist, who expects those same rates to rise to 6.4 percent this year.
Government-funded construction rose 0.4 percent in November to an annual rate of $236.3 billion. Federal construction spending increased 2.9 percent to $17.5 billion, while state and local spending increased 0.2 percent to $218.7 billion.
Public spending on commercial projects rose 5.1 percent to $4.3 billion in November, while spending on amusement and recreation projects rose 3.6 percent to $10.4 billion.
Total privately funded construction fell 0.6 percent to $777.1 billion in November after slipping 0.1 percent in October, the report showed. Private non-residential building, hindered by a glut of office space, dropped 1.2 percent to $222 billion.
Communication-related construction led the decline, falling 12 percent to $12.6 billion. Spending on offices fell 2.2 percent to $30.5 billion.
The November construction spending report included positive combined revisions of $16.7 billion to the two previous months. The October increase to an all-time high of $1.017 trillion was revised from a previous report of no change.
Construction spending is benefiting from public and private repair work generated by damage from the four hurricanes that pummeled the Southeast in August and September, causing more than $26 billion in insured losses.
Anthony Chan of JPMorgan Fleming Asset Management expects hurricane recovery work to generate 500,000 jobs this year, boosting overall job creation to 2.5 million.