WASHINGTON (Reuters) – US construction spending soared to record highs in November, boosted by a robust housing market amid historically low mortgage rates, which could help offset some of the blow to the economy from raging COVID-19 infections to flatten.
The Commerce Department said Monday construction expenditures were up 0.9% to $ 1,459 trillion, the highest level since the government began tracking the series in 2002. The data for October was revised higher to show that construction spending accelerated by 1.6% instead of 1.3% as previously reported.
Strong construction spending supports economists’ predictions that the economy grew by about 5% year-on-year in the fourth quarter. The sharp decline from a record rate of 33.4% in the third quarter reflects a resurgence in the number of coronavirus cases, which has hit the service industry.
Growth is also slowing after the depletion of more than $ 3 trillion in government pandemic aid and delays in approving another bailout package. Nearly $ 900 billion in fiscal stimulus was approved in late December.
Construction expenditure accounts for about 5% of the gross domestic product.
“The data implies a modest upside risk to our GDP growth forecast of 4.3% in the fourth quarter,” said Mike Englund, chief economist at Action Economics in Boulder, Colorado. “The housing boom is generally increasing construction activity … despite some slowdown in transaction-related housing data in recent months.”
Economists polled by Reuters had predicted construction spending to rise 1.0% in November. Construction expenditures were up 3.8% year on year in November.
Spending on private construction projects was up 1.2%, driven by investment in single-family homes amid record low mortgage rates and a pandemic-driven migration to suburbs and areas of low population density. That followed an advance of 1.6% in October.
Residential project spending was up 2.7% after an increase of 3.2% in October.
But spending on non-residential construction, such as drilling gas and oil wells, fell 0.8% in November. The pandemic has pushed prices down, leading to a decline in spending on non-residential buildings in the third quarter. The fourth consecutive quarterly decline in investment in non-residential buildings brought about a recovery in total corporate investment.
Public construction expenditures decreased 0.2% in November, after rising 1.6% in October. State and local government spending was up 0.1%, while federal government spending was down 4.2%.
“Non-residential and public construction remains subdued due to weak demand from virus control disruptions and budget constraints,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York.
Reporting by Lucia Mutikani; Adaptation by Chizu Nomiyama and Paul Simao