US construction spending rose to a record high in November 2020, boosted by a robust housing market amid historically low mortgage rates.
According to the Commerce Department, spending increased 0.9 percent to $1.459 trillion, the highest level since the government started tracking the series in 2002. Data for October was revised higher to show construction outlays accelerating 1.6 percent instead of 1.3 percent, as previously reported.
The strong construction spending could help boost the US economy, which has been severely hit by the ongoing COVID-19 pandemic. Economists have predicted that the US economy grew at around a five percent annualised rate in the fourth quarter. The sharp step-down from a record 33.4 percent pace in the third quarter reflects a resurgence in coronavirus cases, which has impacted the services sector particularly heavily.
Growth is also slowing following the exhaustion of more than $3 trillion-worth of government pandemic relief and delays in approving another rescue package. Nearly $900 billion in fiscal stimulus was approved in late December.
Construction spending accounts for approximately five percent of gross domestic product.
“The data imply modest upside risk for our GDP growth forecast of a 4.3% rate in the fourth quarter,” says Mike Englund, chief economist at Action Economics in Boulder, Colorado, according to a Reuters report.
“The housing boom is lifting construction activity overall … despite some stalling in the transactions-related housing data in recent months.”
While economists polled by Reuters had forecast construction spending would rise one percent in November, construction spending actually increased by 3.8 percent on a year-on-year basis in that month.
The data also showed that spending on private construction projects increased by 1.2 percent, fuelled by investment in single-family homebuilding amid record-low mortgage rates and a pandemic-driven migration to suburbs and low-density areas. That followed a 1.6 percent advance in October.
Spending on residential projects increased by 2.7 percent after surging 3.2 percent in October.
However, outlays on non-residential construction like gas and oil well drilling fell 0.8 percent in November as the pandemic has depressed prices, leading to a contraction in spending on non-residential structures in the third quarter. The fourth straight quarterly drop in investment in non-residential structures bucked a rebound in overall business investment, the data says.
Spending on public construction projects eased 0.2% in November after rising 1.6% in October. State and local government outlays edged up 0.1%, while federal government spending dropped 4.2%.
“Non-residential and public construction remain subdued owing to weak demand related to disruptions from virus containment as well as budget constraints,” adds Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.