A surge in homebuilding pushed construction spending up 0.9% in May, the largest amount in five months, further indication that the housing sector is slowly recovering.

Construction spending reached a seasonally adjusted annual rate of $830 billion – 11.3% above the 12-year low hit in February of last year, according to numbers released Monday by the Commerce Department.

The boost was also well above the Barclays Capital (BCS) estimation of an 0.1% increase and consensus of 0.2%. Continuing the good news, April’s rise was revised higher to 0.6% month over month from 0.3% previously. Construction spending now stands 7% higher than last May.

May’s increase in spending was driven by a strong 1.6% gain in private spending, with both residential spending and nonresidential spending posting gains of 3% and 0.4%, respectively. This was enough to offset another decline in public construction spending of 0.4% month over month, as both residential public spending and nonresidential public spending decreased 0.8% and 0.4%, respectively.

Michael Gapen, a senior U.S. economist at Barclays, said that within private residential construction spending, the data “reflect our view that US housing is in a moderate recovery phase, led by multifamily starts.”

Multifamily spending was up 6.3% in May, which continues a pattern of healthy monthly increases that reflects the doubling in multifamily starts from 110,000 units at the end of 2010 to 220,000 currently.

While multifamily housing spending is up drastically, contribution to GDP growth is mainly driven by the outlook for single-family housing given that multifamily construction spending only accounts for abut 8% of total private residential construction spending.

Single family trends have been on the up as of late, with residential spending in that sector rising seven of the last eight months.

“Together with solid strength in nonresidential private construction, private residential spending has been a strong driver of growth in construction spending in recent quarters,” said Gapen.

While private spending is showing consistent improvement, public construction spending continues to be weak. Government construction projects fell 0.4% to an annual rate of $269.6 billion, the lowest level since November 2006. State and local spending fell 1% to an annual rate of 242.6 billion. Federal construction rose 5.6% to an annual rate of $427 billion, but since federal construction spending declined 5.7% in April, May merely offset April’s decline.

While May beat expectations, the release also contained several historical revisions going back several years. These revisions to the data offset the rise, leaving Barclay’s Q2 GDP tracking estimate unchanged at 1.5%.


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