Housing Construction Spending Tumbles in October 2007
U.S. construction spending tumbled a surprisingly steep 0.8 percent in October as the crumbling housing market led to a huge decline in private home building, a Commerce Department report on Friday showed.
The pace of construction spending in October fell to the lowest in two years to a $1.158 trillion seasonally adjusted annual rate. September spending was revised down to a 0.2 percent rise from its earlier estimate of a 0.3 percent gain.
Spending in October was expected to fall 0.2 percent, according to a Reuters poll of economists.
Private home building fell 2 percent in October to $503.7 billion, the lowest rate in four years. It was the 20th straight monthly decline since a peak in home building in February 2006 and economists said the construction picture is unlikely to improve soon.
“The unsustainable supply of new homes on the market continues to hover over the head of the construction community like the sword of Damocles. Until that supply is burned off, construction activity will remain severely diminished,” said Joseph Brusuelas, chief U.S. economist at IDEAglobal in New York.
U.S. government bond prices trimmed some of their losses after the bigger-than-expected drop in construction spending. Stock prices rose, reacting to separate news that the government will soon unveil a plan to help stem the subprime mortgage crisis and on comments by Federal Reserve Chairman Ben Bernanke that added to expectations for an interest-rate cut.
In the Commerce Department report, private nonresidential building fell for the first time since September 2006, dropping 0.5 percent in October.
“We think a sustained fall in nonresidential spending is now overdue, but one softish month in these volatile data is not conclusive evidence of anything,” said Ian Shepherson, chief U.S. economist at High Frequency Economics in Valhalla, New York.
But helping to offset some of the housing sector woes, construction by state and federal governments rose for the eighth straight month. Public construction rose by 0.8 percent to an all-time high of $295.1 billion.