WASHINGTON Construction spending fell again in April as home building continued a more than two-year-long slide. The weakness was offset somewhat by an increase in non-residential spending activity which climbed to a record level.
The Commerce Department reported that construction activity fell by 0.4 percent in April after having been down 0.6 percent in March. Construction has not increased since last September as the building industry continues to be battered by the worst slump in housing in decades.
Meanwhile, a key index of activity in the manufacturing sector showed an unexpected increase in May. The Institute for Supply Management's index of manufacturing activity edged up to 49.6 in May compared to an April reading of 48.6.
Even with the increase, the manufacturing gauge remained just below a reading of 50, the dividing point which indicates whether manufacturing is in a recession.
Private residential housing construction dropped by 2.3 percent in April, the 26th consecutive monthly decline. Private non-residential activity, however, rose by a strong 1.6 percent, pushing activity in this area to an all-time high as spending on shopping centers, office buildings and hotels all showed big gains.
The 0.4 percent drop in overall construction was slightly smaller than the 0.6 percent fall economists had been expecting and the decline in March of 0.6 percent had originally been reported as a larger 1.1 percent drop. Rising numbers of foreclosures are dumping even more homes on the market.
The 1.6 percent rise in spending on non-residential projects pushed activity in this area to a seasonally adjusted annual rate of $388 billion.
Spending on hotel and motel construction was up 7.6 percent, the biggest gain for any of the non-residential categories, and an increase that some analysts termed puzzling given that spending in this area has been depressed by the severe economic slowdown which has cut into business and vacation travel.
"We expect to see a lot of cheap hotel rooms this summer," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Spending on state and local construction projects dipped 0.3 percent to a seasonally adjusted annual rate of $297.09 billion as a 1.6 percent rise in federal construction was offset by a 0.5 percent drop in spending on state and local construction projects.