The Commerce Department said construction activity rose 0.5 percent to an all-time high of $1.12 trillion at a seasonally adjusted annual rate in September as builders took advantage of interest rates that are still low by historical standards.
However, analysts believe that activity is likely to slow in coming months as the Federal Reserve keeps pushing interest rates higher to combat inflation pressures stemming from the spike in energy prices that occurred following the hurricane-related energy production shutdowns along the Gulf Coast.
The government reportedthat the overall economy expanded at an annual rate of 3.8 percent in the July-September quarter. But analysts said growth would have been well above 4 percent without the drag caused by the hurricanes, which have cost more than a half-million jobs.
The 0.5 percent increase in construction spending in September followed strong gains of 0.6 percent in both August and July.
Private construction rose by 0.6 percent to a seasonally adjusted annual rate of $871.5 billion with private residential building up an even stronger 1 percent, to $624.3 billion. Both the overall private construction figure and the residential activity were at all-time highs.
Both office construction and commercial buildings, a category that includes shopping centers, showed big gains in September.
Total government construction was unchanged in September at an annual rate of $248.5 billion after posting a 0.4 percent increase in August. Activity at the state and local level rose by 0.3 percent to a record high of $231.9 billion while federal building projects dipped by 4.5 percent to an annual rate of $16.7 billion.
In a separate report on the state of the economy, the Institute for Supply Management issued its monthly report on the U.S. economy's industrial sector Tuesday. Its manufacturing index was at 59.1 percent last month, down from September's 59.4 percent.
The ISM's measure of costs, its prices index, rose to 84.0 in October from a reading of 78.0. New orders, a gauge of future activity, fell to 61.7 in October from 63.8, while employment rose to 55.0 from 53.1.
One executive who took part in the ISM's October survey told of the "most price increase letters I have ever seen" while another respondent expressed concern aboutand its effect on the future prices of commodities."
"Rising prices and energy costs in particular, are of major concern as manufacturers are struggling to control costs," Norbert Ore, chair of the ISM manufacturing business survey committee said in a statement.
The industry group said this was the 29th consecutive month in which manufacturing grew while the overall economy grew for the 48th consecutive month.