Ahead of the Bell:
Construction spending

[October 03, 2011]  WASHINGTON (AP) -- Spending on new building projects is expected to have fallen again in August.

The consensus forecast is that construction spending fell 0.2 percent, according to a survey of economists by Fact Set. The new report will be released at 10 a.m. Eastern time on Monday.

In July, construction spending declined 1.3 percent. It was the biggest setback in six months and reflected the weakest pace for government spending on building projects in five years.

Overall construction dropped to a seasonally adjusted annual rate of $789.5 billion in July, just 3.5 percent above an 11-year low hit in March. That's roughly half the $1.5 trillion pace considered healthy. Analysts say it could be four more years before construction returns to healthy levels.

The construction bust reflects the gloomy state of affairs in housing and a weak economy that has crimped government spending and made it hard for builders to get bank financing for new projects.

This year's home buying, during the typically peak months of March through August, was a bust. Americans bought fewer new homes in that stretch than in any other six-month period since record keeping began a half-century ago.

And sales of previously occupied homes didn't fare much better. They nearly matched the 2009 total for the peak buying months, a period that was the worst since 1997.

Combined, total sales this spring and summer were the weakest on records going back to 1963, underscoring how badly the housing market is faring and suggesting that a sustained recovery is years away.

Because the economy is barely growing with unemployment stuck above 9 percent, people are fearful about buying a home out of concern they could lose their jobs or home prices could fall further. Some would-be buyers can't afford the 20 percent down payment that most lenders now require.

Economists at Moody's Analytics believe prices may stop falling by early next year but they don't expect sales and prices to make a healthy recovery until 2015 at the earliest.

Spending on government projects fell in July to the lowest level since late 2006. State and local governments have been forced to cut back because of severe budget problems while the federal government has come under pressure from a drive to get control of soaring budget deficits.

[Associated Press]

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