Construction Spending Falls In August, But Don't Blame Homebuilders

U.S. construction spending dropped in August despite an increase in residential home building, which was offset by weaker commercial and government activity, the Commerce Department said Monday.

Construction spending fell 0.6 percent compared to the prior month, missing a Bloomberg forecast of a 0.5 percent increase. In July, the indicator fell 0.4 percent, revised upward on Monday from a previously estimated 0.9 percent drop.

Private homebuilding spending rose 0.9 percent to $273.5 billion, the highest level since January 2009. Improvement in the housing sector has boosted the stocks of the country's largest homebuilders, including Lennar Corp. (NYSE: LEN), D.R. Horton Inc. (NYSE:DHI) and PulteGroup Inc. (NYSE: PHM). The SPDR S&P Homebuilders ETF (NYSEARCA: XHB), a benchmark index, is up 45.56 percent year-to-date.

But commercial and government projects, which account for 70 percent of current spending, have lagged behind. Private commercial construction was down 1.7 percent in August compared to the prior month. The steepest drops were in communication and power buildings, which each fell 3.7 percent month-over-month.

Government project spending was down 0.8 percent as state and local government scaled back spending in the face of high debt and falling tax revenue. State and local governments spent 0.9 percent less on construction compared to the prior month, while federal spending was up 0.3 percent in August.

Separately, the Institute for Supply Management’s U.S. manufacturing index rose to 51.5 in September from 49.6 in August, the group reported Monday. The measurement beat a Bloomberg forecast of 49.7. Any number above 50 indicates expansion in the sector.