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US construction up tiny 0.1 per cent in January with strength coming from housing gain

WASHINGTON - U.S. construction spending showed a tiny increase in January as strength in housing helped to offset declines in nonresidential building and government projects.

Construction spending edged up 0.1 per cent in January, significantly slower than an upwardly revised 1.5 per cent gain in December, the Commerce Department reported Monday.

Home building was up 1.1 per cent in January with single-family construction rising 2.3 per cent and apartment building up 1 per cent.

However, there was widespread weakness outside of housing. Non-residential construction fell 0.2 per cent and office building was flat, with bad weather likely a factor in the weakness.

Total government construction was down 0.8 per cent in January compared with December.

Construction spending totalled $943.1 billion in January at a seasonally adjusted annual rate.

The 1.1 per cent rise in housing construction was just half of the 2.5 per cent gain in December.

Economists had expected the January weakness, believing that construction, like other parts of the economy, would be slowed by the unusually cold weather. However, the expectation is that builders will see better gains once spring and warmer weather arrive.

Most economists are looking for sales of new and existing homes to show further gains in 2014, bolstered by an improving economy and steady job growth.

Sales of new homes rose 9.6 per cent in January to a seasonally adjusted annual rate of 468,000. It was the fastest pace since July 2008. The surge came as a surprise to economists. Most had expected a decline in January, in part because they thought purchases would be held back by winter storms in much of the country. Sales had fallen 3.8 per cent in December and 1.8 per cent in November, prompting concerns that the housing recovery might be losing momentum.

Housing, while still a long way from the boom of several years ago, has been recovering over the past two years. Residential construction has grown at double-digit rates and contributed about one-third of a percentage point to overall economic growth last year.

Economists expect home construction will rise in 2014 although at a slower pace than in 2013.

Economists are optimistic about further sales gains because they think the overall economy will strengthen this year as more people find jobs and last year's drag from higher federal taxes and government spending cuts eases.

One assumption underlying expectations on housing: Even as the Federal Reserve keeps scaling backs its bond purchases, which were used to keep long-term rates low, mortgage rates will rise only gradually this year.

The Canadian Press


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