Construction Spending Sees Modest Gain

Construction spending unexpectedly kicked upward in September, led by homebuilders and somewhat more expectedly by public spending, according to the U.S. Department of Commerce.

November 2, 2010
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user pnwra

Construction spending unexpectedly kicked upward in September, led by homebuilders and somewhat more expectedly by public spending, according to the U.S. Department of Commerce. The 0.5 percent gain (to $801.7 billion) came on after a 0.2 percent drop in August that was initially reported as a 0.4 percent gain, so it’s possible that September’s gains will likewise be a will-o’-the-wisp.

Still, homebuilding increased 1.8 percent month-over-moth. Commercial real estate spending dropped 1.6 percent during September, to the lowest level since January 2005, according to the Commerce Department report. Total construction spending was down 10 percent year-over-year and 34 percent compared with the bubble peak of 2006.

Public project spending saw a 1.3 percent increase, the highest level since July 2009. Public residential construction (which is volatile, like its private counterpart) spiked 25 percent month-over-month; more modest but perhaps more lasting gains were made in the likes of power plants and sewage systems.

Income Down, Spending Up

Personal income was down by 0.1 percent ($16.8 billion) in September and disposable personal income dropped even more, 0.2 percent ($20.3 billion), during the same month, according to the U.S. Bureau of Economic Analysis. That contrasts with August, when both personal income and disposable personal income both rose by 0.4 percent.

At the same time, personal consumption expenditures were up 0.2 percent, which probably represents consumers tapping into a little of the money they’ve been saving so assiduously in the last two years, since consumer credit is still down on the whole. Personal consumption expenditures were also up in August, by 0.5 percent.

In an indication that the multifamily market is doing fairly well, the BEA also reported an increase in rental income during September. All together, U.S. rental income was $3.7 billion during the month, compared with $3.1 billion in August.

Another Bank Sinks Under RE Loan Losses

Regional bank M&T Bank, based in Buffalo, has acquired Wilmington Trust for $351 million in stock as well as assuming $330 million of the bank’s obligations under TARP. The price represents about half the bank’s market value.

Just another smaller bank in trouble being eaten by a larger one? Yes, but Wilmington, Del.-based Wilmington Trust’s troubles stemmed largely from bum real estate loans weighing it down. It lost about $365.3 million in 3Q10 mainly for that reason. Expect to see more of this kind of sudden consolidation among banks because of unwise real estate lending finally catching up with unwise lenders.

Wall Street saw another break-even day, presumably as investors cool their heels in anticipation of the mid-term elections. The Dow Jones Industrial Average was up 6.13 points, or 0.06 percent, while the S&P 500 gained 0.09 percent. The Nasdaq lost 0.1 percent.