US construction spending races to record high in Nov 2020

Washington

US construction spending rose to a record high in November 2020, boosted by a robust housing market amid historically low mortgage rates, which could help blunt some of the blows on the economy from raging Covid-19 infections.

The Commerce Department said on Monday that construction spending increased 0.9 per cent to US$1.459 trillion, the highest level since the government started tracking the series back in 2002.

Data for October was revised higher to show construction outlays accelerating 1.6 per cent instead of 1.3 per cent as previously reported.

Strong construction spending supports economists' predictions that the economy grew at around a 5 per cent annualised rate in the fourth quarter.

The sharp step-down from a record 33.4 per cent pace in the third quarter reflects a resurgence in coronavirus cases, which has slammed the services sector.

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Growth is also slowing, following the exhaustion of more than US$3 trillion in government pandemic relief and delays in approving another rescue package. Nearly US$900 billion in fiscal stimulus was approved in late December. Construction spending accounts for about 5 per cent of gross domestic product.

"The data implies modest upside risk for our GDP growth forecast of a 4.3 per cent rate in the fourth quarter," said Mike Englund, chief economist at Action Economics. "The housing boom is lifting construction activity overall, despite some stalling in the transactionsrelated housing data in recent months."

Economists polled by Reuters had forecast construction spending would rise 1 per cent in November. Construction spending increased 3.8 per cent on a year-on-year basis in November.

Spending on private construction projects increased 1.2 per cent, fuelled by investment in single-family homebuilding amid record-low mortgage rates and a pandemic-driven migration to suburbs and low-density areas. That followed a 1.6 per cent advance in October.

Spending on residential projects increased 2.7 per cent after surging 3.2 per cent in October.

But outlays on nonresidential construction like gas and oil well drilling fell 0.8 per cent in November. The pandemic has depressed prices, leading to a contraction in spending on nonresidential structures in the third quarter.

The fourth straight quarterly drop in investment in nonresidential structures bucked a rebound in overall business investment.

Spending on public construction projects eased 0.2 per cent in November 2020, after rising 1.6 per cent in October. State and local government outlays edged up 0.1 per cent, while federal government spending dropped 4.2 per cent.

"Non-residential and public construction remain subdued owing to weak demand related to disruptions from virus containment as well as budget constraints," said Rubeela Farooqi, the chief US economist at High Frequency Economics in New York. REUTERS