Newest Evidence of Recovery: New Construction Surges

Construction spending rose in May, the latest sign of the housing sector pulling itself up by its bootstraps. The amount spent on construction work and supplies increased from April to May by 0.9 percent, the highest since December 2009.

According to new data released by the U.S. Census Bureau, at an annual rate of $830 billion, U.S. construction in May grew 7 percent from the previous year. Many view the upsurge in construction spending as a sign of the growing health of the housing market, because it implies that lending is more readily available.

Home Permits Rise Again
As cash begins to flow within the construction industry, builders will apply for permits in growing numbers. In May, the number of permits applied for by contractors reached its highest since September 2007. A jump in home-building permits contributed to an economic growth of 0.3 percent, reported Bloomberg. The increase surpassed estimates in April that the economic outlook would grow just 0.1 percent.

This news corroborates statements made by Pat Newport, a housing market analyst for HIS Global Insight. “Permits are a key number. It tells us that housing construction numbers will get better and that means more jobs,” Newport said.

Building permits represent future construction activity, and the recent highs, combined with low home prices and record-low mortgage rates, encourage the housing market to leap full throttle into recovery.

Private vs. Public Construction
Construction work, a barometer for the overall U.S. economy, happens on various levels: private, public, residential, and nonresidential. At a seasonally adjusted annual rate of $560.4 billion, a 1.6 percent increase, private construction spending in May surged further than April estimates. For public construction, the annual rate fell 0.4 percent, as educational and infrastructure construction projects dropped 3 percent and 0.5 percent, respectively.

Growing demand for new homes contributed to the 3 percent increase in residential construction spending in May. Multifamily projects, like apartment complexes and condominiums, jumped a surprising 6.3 percent during the month, while single-family homes rose 1.8 percent. As renters and boomerang kids enter the next phase of their lives, demand for new homes and condos is expected to rise.

Other Indexes Point to a Slow Recovery
While the construction sector enjoys resurgence, economists are still wary of a slow recovery. Chief economist for the NAHB, David Crowe, said, “Right now, we’re half of where starts and permits would normally be and less if you consider this a recovery period.” Despite the harsh reality of a long, slow recovery, Crowe admits, “things are improving.”

When the economy crashed in 2008, the real estate industry was its hardest hit victim. Now, construction spending is rising along with demand for new homes. Until hiring and the jobs market propel the economy into a full U.S. recovery, the housing market promises better economic times.

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