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Why is public construction spending tanking?

Private spending growth offsets decline for a mediocre December

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Construction rose tepidly in December, with private home building offsetting a decline in public construction.

Despite the modest growth, construction spending is now reaching its greatest level of activity since March 2009.

Total spending climbed a mere 0.1% after a 0.8% growth in November. Strength was in private residential outlays which jumped 2.6% in December, following a 1.1% rise the month before.

By subcomponents, new single-family outlays gained 3.4% in December, while new multifamily rose 0.5%. Ex-new homes increased 2.0% in December. Private nonresidential construction spending dipped 0.7%.

Total construction activity for December 2013 was $930.5 billion, 0.1 percent above the revised November 2013  total of $929.9 billion.

Public outlays fell 2.3% after a 1.4% decline in November, reaching its lowest level in 12 months.

Total construction outlays were up 5.3% on a year-ago basis in December.

Homebuilders are more optimistic than recent sales numbers. This could be a response to lack of supply and concern that mortgage rates are likely to rise later this year as the Federal Reserve cuts back on purchases of mortgage-backed securities.

Market Consensus before announcement Construction spending jumped 1.0% in November, following a 0.9% gain the month before.

The November increase was led by the nonresidential and residential components. Private nonresident outlays grew 2.7%, following an increase of 0.5% in October. Public outlays declined 1.8% but followed a sizable 3.1% boost in October.

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