Construction spending rises in February, government reports

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Posted 8:19AM on Tuesday, April 2, 2002

WASHINGTON - Construction spending posted its biggest increase in a year in February as builders took advantage of Americans' demand for new homes. The Commerce Department reported Monday that spending on construction projects grew by a bigger-than-expected 1.1 percent in February. Many analysts were forecasting a smaller, 0.6 percent rise. It was the third straight monthly rise. Virtually all of the strength came from increased spending on residential construction, which rose 3.5 percent, especially single-family homes. Despite the recession that began in March 2001, home sales hit record highs last year. Buyers snapped up both new and existing homes, motivated not only by low mortgage rates but also by increases in home values, especially as the stock market swooned. Even as mortgage rates have crept up over the last four weeks, home sales have remained at solid levels. The 1.1 percent increase in construction spending in February matched the rise recorded in February 2001. Spending on new single-family homes rose by 3.1 percent in February, the biggest increase since December 1993. But spending on commercial projects, including industrial complexes, office buildings and hotels, declined by 3 percent in February. Spending on big government projects, including highways, dipped by 0.5 percent. To rescue the economy from recession, the Federal Reserve slashed interest rates 11 times last year, pushing some interest rates down to the lowest levels seen in four decades. The Fed, citing signs of a turnaround, opted in January and in March to hold interest rates steady, meaning businesses and consumers will be able to continue to enjoy low borrowing costs to finance such things as construction projects, capital improvements and home remodeling. But many economists say Fed policy-makers will boost short-term interest rates later this year as the economic rebound gathers steam. In January, spending on all construction projects rose 0.8 percent, a much smaller increase than the 1.5 percent advance the government previously reported.