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Construction spending climbs to highest level since '09

Construction spending climbed in September to the highest level in almost three years, led by a rebound in homebuilding that is rippling through the U.S. economy.

The 0.6 percent rise brought outlays up to $851.6 billion, the most since October 2009, and followed a revised 0.1 percent August drop that was smaller than previously estimated, the Commerce Department reported Nov.1 in Washington.

The median estimate of 48 economists surveyed by Bloomberg was for a 0.7 percent gain.

Demand for new homes is boosting residential construction as the real estate market sheds excess distressed properties and borrowing costs remain at record lows.

At the same time, concerns about the looming “fiscal cliff” of tax increases and spending cuts set to take effect next year if Congress fails to act may be holding back non-residential projects, which make up about 70 percent of construction spending.

“Homebuilders are feeling a bit more optimistic about home sales going forward,” and residential construction has been helped by low new home inventories, said Ryan Wang, an economist at HSBC Securities USA Inc. in New York, before the report. Still, “public construction is probably going to stay subdued” because of fiscal constraints.

Estimates in the Bloomberg survey ranged from a drop of 0.4 percent to a 1.3 percent gain. August was initially reported as a 0.6 percent decrease.

More employment

Other reports Nov.1 showed employment picked up in October, fewer Americans filed claims for unemployment insurance payments last week, and worker productivity held up in the third quarter.

Companies added 158,000 workers last month, a private report based on payrolls showed.

The increase in employment was higher than forecast, according to data from Roseland, N.J.-based ADP Research Institute.

Applications for jobless benefits fell 8,000 to 355,000 in the week ended Nov. 3, the fewest in three weeks, the Labor Department reported.

Other Labor Department data showed employee output per hour climbed at a 1.9 percent annual rate, the same as in the prior three months.

The median forecast in a Bloomberg survey of 60 economists called for a 1.8 percent rise. Costs per worker unexpectedly dropped at a 0.1 percent rate.

Construction spending increased 8.9 percent in the 12 months ended in September before adjustments for seasonal variations, the Nov. 1 Commerce Department report showed.

Private construction spending climbed 1.3 percent from the prior month.

Housing rebound

Homebuilding outlays increased 2.8 percent to $285.9 billion, the highest level since December 2008.

Private non-residential projects decreased by 0.1 percent as builders broke ground on fewer health care facilities and commercial structures.

“The fiscal cliff certainly seems to have affected business capital spending of all kinds, including construction,” said Bill Cheney, chief economist for John Hancock Financial Services Inc. in Boston, before the report. “I assume we’re going to see a huge boost in construction spending as we start rebuilding,” probably in the second quarter of next year, he said.

Spending on public projects dropped 0.8 percent from the prior month to $271.1 billion, the lowest level since December 2006. Federal construction decreased 6.2 percent, while state and local agency projects fell 0.3 percent from the prior month.

Home sales

The housing market recovery has been strengthening. Purchases of new homes rose in September to the highest level in more than two years, the Commerce Department said in October.

Home values are improving, with the S&P/Case-Shiller index of prices increasing in the year ended August by the most in two years, according to data released in October.

Homebuilders like Weyerhaeuser Co. (NYSE: WY) are showing tempered enthusiasm for the rebound in the housing industry.

“While construction levels are still low by historic standards, all forecasts point to continued recovery in 2013, as we begin to return to long-term trend levels that are needed to house a growing number of U.S. households,” said Daniel Fulton, the company’s president and chief executive officer, on an Oct. 26 earnings call.

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