Washington, DC, Feb. 3--Construction spending jumped 1.2% in December. The over the month increase pushed the value of all construction projects to a seasonally adjusted annual rate of $858.3 billion and followed a sizable 0.9% gain in November, according the Commerce Department.
December's increase, larger than the 0.3% increase that analysts were predicting, marked the biggest gain in 10 months.
Home building has been the main source of strength for the overall construction market. In December, spending on all residential projects rose to a record $434.6 billion on an annualized basis, representing a 2.9% increase from the previous month.
The housing market has been one of the economy's few bright spots. Sales of both new homes and previously owned homes hit record highs in 2002 as some of the lowest mortgage rates seen in decades proved too good for people to pass up.
While the residential side has been strong, the commercial side of the construction market has remained weak, reflecting reluctance by businesses to make big commitments in capital spending, including new factories and other buildings, given economic uncertainties.
Further complicating the problem is that companies have been having trouble obtaining terrorism insurance in the wake of the Sept. 11, 2001 attacks on the World Trade Center in New York and at the Pentagon.
That situation should improve in the wake of a new terrorism insurance program that Bush signed into law late last year. The law provides billions of federal dollars to help insurance companies pay claims in the event terrorists attack the United States again.
Spending on commercial projects by private builders was reduced by 1.9% in December from the previous month to a seasonally adjusted annual rate of $158.6 billion. The drop was led by cuts in spending for office buildings. Spending also was reduced for hotels and motels, another segment of the construction market that is still feeling the lingering effects of the terror attacks.
For all of 2002, construction spending rose just 0.4%, a big slowdown from the 2.7% gain the previous year. Last year's performance was the worst since 1991.
Spending on big government projects in December rose by 1% to a seasonally adjusted annual rate of $210.5 billion, the highest level since February.
