U.S. construction spending stumbled in November by 0.4 percent despite a continued healthy level of activity, according to figures the Commerce Department released Monday.
The decreased spending represented the first drop since January 2004. Annually adjusted construction spending for November is at $1,013.3 billion, according to the report.
“I really don’t see the glass as being half empty,” said Kenneth Simonson, chief economist for the Associated General Contractors of America. “It’s a plateau rather than a drop.”
Simonson said there is no immediate sign construction spending will slump this year. He said both construction spending and construction equipment costs should continue to moderate.
However, Simonson warned large jumps in material costs could disrupt the market. Construction material prices overall increased 9 percent during the past year. Oil prices waned during the same period, leading to lower costs for diesel fuel and asphalt.
Nick Yaksich, vice president of government affairs for the Association of Equipment Manufacturers, said he remains optimistic about construction spending in 2005.
“Spending seems to have been flat since July,” Yaksich said. “There’s still a demand for equipment.”
Economists had been forecasting a 0.5 percent rise in spending on building projects, buoyed by brisk home construction accruing throughout 2004. The new report suggests this building spree might be losing strength.
Sales of new and existing homes hit record highs in 2004, though new home sales fell 12 percent in November, according to Commerce Department statistics.
Analysts believe home sales will moderate in 2005, but the housing market will remain in good shape. The moderation is based in part on the expectation that mortgage rates will move higher this year, something Simonson and other economists had predicted during the past few years.
Nonresidential builders also trimmed spending on commercial ventures — including hotels and motels and office buildings — in November by 1.2 percent. In October, spending on commercial projects was flat.
However, government spending on public works projects rose by 0.4 percent in November, following a 1.6 percent rise in the prior month.
The devastation resulting from a late December earthquake and tsunami could increase pressure on prices of construction materials as those products are diverted to south Asia.
