Construction spending flat, but ‘bright’ outlook for manufacturing

U.S. construction spending was flat in May with homebuilding falling again, even as buyers face climbing prices and a shortage of available properties on the market.

The Commerce Department reported on Monday no increase in construction spending in May, which follows a report two weeks ago showing that housing starts fell for the third straight month.

But in a more positive note for the economy, the Institute for Supply Management (ISM) said its index of national factory activity rose to a reading of 57.8 last month, its best performance since August 2014, from 54.9 in May, Reuters reported.

A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for roughly 12 per cent of the overall U.S. economy.

“The ISM index provides further evidence that the prospects for the manufacturing sector remain bright,” said Andrew Hunter, an economist at Capital Economics.

Economists have been expecting housing construction to play a key role in supporting overall economic

growth in 2017 as demand for homes rises amid low unemployment and rising incomes. However, many buyers have been frustrated by limited inventory and rising prices.

Private residential construction fell 0.6 per cent in May, the first decline in that category since April 2016 and its biggest decline since a 0.6 per cent drop in July 2014.

Non-residential construction declined 0.7 per cent, the fifth straight monthly decline for the category.

Overall construction spending was reported at a seasonally adjusted annual rate of $1.23 trillion, the same as last month’s revised figure.

The flat May number follows April’s decline of 0.7 per cent, which was revised from an originally reported drop of 1.7 per cent. Analysts last month said they thought April’s dismal number was an anomaly and had expected a modest rebound in May.

Government construction spending rose at the state and federal levels after declines last month.

State and local government construction rose 1.7 per cent after last month’s decline of 2.7 per cent. Federal government construction also rebounded, rising 6.4 per cent after a decline of 2.1 per cent in April.

Construction of manufacturing facilities dipped 1.7 per cent in May and is down 10.7 per cent from the same month last year.