U.S. construction spending increased unexpectedly in March, the government reported Monday, sparking hopes that the battered building industry may be stabilizing. The Commerce Department said construction spending rose 0.3 percent in March, the best performance since a similar increase last September. Economists had expected a 1.5 percent drop for a sixth consecutive monthly decline. Spending on private residential projects fell 4.2 percent in March, the latest in a series of declines that started three years ago when the housing bubble burst, triggering a financial crisis that sent the broader economy into recession. Non-residential construction rose 2.7 percent in March, the biggest gain in nine months. It was the second consecutive rise and was led by advances in office construction, hotels, and power plants. Government building activity also rose in March, gaining 1.1 percent. A 1.3 percent rise in state and local activity offset a 1.7 percent decline in spending on federal projects. The increase in state and local activity could be early signs of the impact of the $787 billion economic stimulus package Congress approved in February. Total construction spending rose slightly to an annual rate of $969.7 billion in March. But even with the unexpected increase, building activity is 11 percent below year-ago levels, reflecting the steep recession. Economists warned that the construction rebound in March could be temporary due to all the problems facing the industry, including the difficulty for builders to obtain financing. With the financial sector in its worst crisis in seven decades, banks have tightened lending standards.
