September construction spending rises 0.8 percent

WASHINGTON (AP) — Construction spending in September posted a better-than-expected performance, powered by the largest jump in housing construction in more than six years.

The advance spurred hope that the battered housing sector is starting to turn around and will provide support for the overall economy as it struggles to emerge from the worst recession since the 1930s.

The Commerce Department said Monday that total construction spending was up 0.8 percent in September, much better than the 0.3 percent drop that analysts had forecast. The August performance was revised down to show a 0.1 percent drop rather the 0.8 percent gain first reported.

The overall increase reflected a 3.9 percent rise in spending on residential construction, the biggest jump in housing activity since July 2003. Economists believe that this sector is starting to rebound and should help support an economic recovery.

There is a worry, however, that a big part of the activity in recent months may have reflected a rush by builders to start projects that could qualify for a tax credit of up to $8,000 offered by the government to first time home buyers.

That tax credit is due to expire on Nov. 30 although a group of senators last week agreed to extend the tax credit for potential buyers who have sales agreements signed by the end of April. Those buyers would have until the end of June to close on their new homes.

The housing industry has lobbied for the extention, arguing that without this support the tentative rebound that is now occurring in housing could be derailed.

The 3.9 percent rise in housing pushed activity in this category to an annual rate of $255.97 billion, still 27 percent below the pace of a year ago.