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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

April construction spending surges, fueled by now-ended tax credits

April construction spending made its biggest one-month jump in nearly 10 years, fueling hopes of recovery in a flagging U.S. industry.

But the boost was probably caused by the home buyer tax-credit that expired at the end of April, which not only tempted buyers of new homes but encourage builders to start constructing new ones again. The incentives caused serious distortions in the market and we won't get clean data on construction spending -- that is to say, organic, absent stimulus -- until this summer.

Spending rose 2.7 percent in April, the Commerce Department said this morning, the biggest one-month improvement since August 2000. The construction industry was the backbone of the housing bubble that expanded until 2006 and then burst in the sub-prime mortgage fiasco, touching off the financial crisis and putting the construction industry into a stall.

Housing construction was up 4.4 percent in April, goosed by government-subsidized home buyer tax credits that expired at the end of April.

“The turn in housing is encouraging,” Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado, told Bloomberg. “We’ve cleared away enough new homes inventories that at least we can add some construction. Non-residential construction is still quite weak.”

Speaking for the other side is Ian Shepherdson, chief U.S. economist at High Frequency Economics:

"These numbers are hugely unreliable ... and we expect a downward revision next month," Shepherdson told the Associated Press.

Commercial construction was up 1.7 percent April, the first time nonresidential construction spending has risen in a year.

But don't think the boost in commercial construction came from new office buildings and shopping centers. Those fell in April. The surge came from big-ticket items such as power plants being built.

By Frank Ahrens  |  June 1, 2010; 11:55 AM ET
Categories:  Data  
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