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February 1, 2021 1:15 PM, EST

Construction Spending Up 1% in December, Led by Housing

New homes under construction in a development in Littleton, Colo. (David Zalubowski/Associated Press) New homes under construction in Littleton, Colo. (David Zalubowski/Associated Press)

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WASHINGTON — U.S. construction spending rose a moderate 1% in December as the number of new homes offset a sustained weakness in nonresidential construction.

The increase followed a 1.1% gain in November, the Commerce Department reported Feb. 1. Last month’s strength came from a 3.1% jump in spending on residential projects with money going to single-family homes surging by 5.8%.

While home construction is gaining, there was a 1.7% decline in nonresidential construction, which had declines in hotel and motel construction and in the category that includes shopping centers.

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Spending on government projects that had been hit by falling tax revenues rose 0.5% in December.

In an era of extraordinarily low interest rates, housing has been a star performer over the past year even as other parts of the economy are ravaged by the COVID-19 pandemic.

Economists believe the sharp split between a strong housing sector and weak nonresidential construction may narrow in the coming year as the country pulls out of the pandemic-induced recession.

“We look for a gradual recovery in private, nonresidential investment as the recovery takes hold while we expect the pace of housing starts to moderate slightly,” said Nancy Vanden Houten, senior economist at Oxford Economics.

She said she expected government construction would continue to be constrained by tight state and local budgets.

Construction totaled $1.49 trillion at a seasonally adjusted annual rate in December, 5.7% higher than the level in December 2019. Residential construction was up 20.7% over December 2019 with spending on single-family homes rising 23.5%, while spending on apartment construction was up 17.8%.

By contrast, nonresidential construction was down 9.8% from December 2019, with hotel and motel construction down 24.6% and office building down 3.3%.

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