Economy Watch: Construction Spending Drops Slightly

By Dees Stribling, Contributing Editor

The Census Bureau reported on Monday that U.S. construction spending edged down 0.6 percent in August compared with July, with both private and public construction spending off a bit. Compared with the August 2011, however, construction spending was still up by 6.5 percent, with private construction projects accounting for all of the gain (up 12.1 percent year-over-year), while public construction spending was down 3.5 percent.

Construction spending rose in September in only a handful of sectors, such as private residential projects, which gained 0.6 percent for the month. But private residential construction but was up 16.1 percent for the year, reflecting the partial recovery of the housing market. New single-family construction was up year-over-year by 20.8 percent, while multifamily construction gained a whopping 44.8 percent on an annual basis. Also, hotel and motel construction didn’t change much for the month (down 0.3 percent), but the sector has seen a large spike (up 30.3 percent) since August of last year, as developers are eager to get projects out of the ground.

The largest annual drops in construction spending were in public residential projects—down 27.7 percent—and the likes of religious buildings, amusement and recreation and public water supply projects. A few kinds of public works saw small annual increases in construction spending, such as power, highways and streets, and other transportation projects.

Manufacturing improves a little

The U.S. manufacturing sector, which had been softening lately, showed some signs of mildly renewed vigor on Monday, according to the Institute for Supply Management. The organization’s purchasing manager’s index for September came in at 51.5, which denotes a modest expansion, compared with the August reading of 49.6, which signals a modest contraction.

The index’s components were all up. The new-orders index rose to 52.3 from 47.1 in August, meaning that there’s more demand for manufactured goods, and the exports index inched up to 48.5 from 47, meaning a good bit of that demand is still from overseas, despite the ongoing economic problems in other parts of the world. The production index was up to 49.5 from 47.2, and the employment index rose to 54.7 from 51.6.

Demand for U.S. goods may indeed drop again, especially demand from Europe. Eurostat, the statistics agency of the EU, reported on Monday that unemployment in the 17 countries of the euro zone remained at a record high rate of 11.4 percent in August. The zone also experienced only 0.2 percent GDP during the second quarter, eking out a gain only because Germany and a few other countries are is still growing, albeit at a wheezing pace. Among euro-using countries, Greece, Spain, Italy, Portugal, Cyprus and Malta are already in recession.

Ben Bernanke talks up fed policy

Fed chairman Ben Bernanke spoke to the Economic Club of Indiana on Monday in a format of answering “Five Questions About the Federal Reserve.” The questions were about the Fed’s objectives, the Fed’s accommodative monetary policy (interest rates and QE) and how the Fed is held accountable. Among other things, the chairman took the opportunity to assert the Fed’s various actions are going to be beneficial to the economy.

Bernanke also said that the central bank isn’t going to reverse course until it’s really sure that the recovery is solid, as opposed to the milquetoast recovery the country has experienced so far. “We expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens,” he said, noting the Fed does expect the recovery to continue, and even gain momentum.

Wall Street ended the day mixed. The Dow Jones Industrial Average was up 77.98 points, or 0.58 percent, and the S&P 500 gained 0.27 percent. The Nasdaq lost 0.09 percent.