Construction Spending in December Rose 1.5 Percent, Beating Estimates

on February 01 2012 11:19 AM
New homes under construction are seen at Hawaiian Gardens, California
New homes under construction are seen at Hawaiian Gardens, California, June 28, 2011. REUTERS

Boosted by non-residential developments, builders increased their December 2011 spending 1.5 percent, more than economists had expected. December was the fifth consecutive month for gains. If the trend continues, it could indicate an ongoing U.S. economic recovery.

The figures were reported Wednesday by the Commerce Department. Earlier, the median economist estimate was for only a 0.5 percent gain with only one prediction of an increase above 1 percent, Bloomberg reported.

Seasonally adjusted spending reached an annual rate of $816.4 billion, the highest amount in nearly two years. That gain was led by a jump of 3.3 percent in nonresidential construction. Residential construction, mostly single-family homes, rose 0.8 percent. Government spending rose 0.5 percent.

While spending on construction has rebounded since the collapse of the housing bubble in 2007, homebuilders remain skittish about placing more properties on the market, given the glut in existing home inventories. Building of new homes has been depressed by the wide difference between the prices being asked for new homes and those fetched by existing properties. In December, that gap exceeded 38 percent.

The better-than-expected data, along with an earlier report that showed U.S. employers had added 170,000 jobs in January, and another showing an increase in manufacturing, coincided with a small rally in U.S. equity markets Thursday.

The benchmark S&P 500 Index was at 1,327, up 1.1 percent from Tuesday's close, in mid-morning trading. Shares of D.R. Horton, the largest U.S. homebuilder, advanced nearly 2 percent, to $14.19.

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