Ahead of the Bell: Construction Spending

(AP)  WASHINGTON — Construction spending likely grew for a fourth straight month in November, a hopeful sign for an industry that has weighed on the broader economy.

Economists forecast that builders spent 0.4 percent more in November, according to a FactSet survey. The Commerce Department plans to release the report at 10 a.m. Eastern time Tuesday.

In October, construction spending rose 0.8 percent to a seasonally adjusted annual rate of $798.5 billion. Despite the gain, spending is barely half the $1.5 trillion that economists consider healthy. Analysts have said it could be four years before construction returns to healthy levels.

The construction industry was hit hard from the housing bust and has had trouble recovering since the recession ended more than two years ago.

Severe budget problems have squeezed state and local governments while the federal government has come under pressure to get control of soaring budget deficits.

Private builders haven't fared much better. While their spending increased, they have scaled back on construction plans and are working from depressed levels.

Home construction has begun a gradual rebound and should add to the nation's economic growth in 2011. The chief reason is apartments are being built almost twice as fast as two years ago. Renting is the only option for many people who have lost their jobs, their homes or both.

Builders in November broke ground on homes at a seasonally adjusted annual rate of 685,000. That was a 9.3 percent jump from October and the fastest pace since April 2010.

Builders should start at least 600,000 homes this year. That's up from 587,000 last year and 554,000 in 2009 — the worst year on record. Still, that's half the number that economists expect in a healthy market.

While construction may be turning around, home sales are still weak. This year will likely end up as the worst for new-home sales in history.

While new homes represent less than one-fifth the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

Builders are struggling to compete with weak demand because of still-high unemployment and a glut of homes on the market because of foreclosures and short sales — where lenders accept less for a house than the mortgage on the home is worth. Those homes are selling for at an average discount of 20 percent, which is lowering neighboring home values.