WASHINGTON: US construction spending unexpectedly fell in December as investment in both private and public projects dropped, leading economists to expect that the government will trim its economic growth estimate for the fourth quarter.
The report from the Commerce Department on Monday was further evidence the economy lost momentum at the tail end of 2018. Growth is slowing as the stimulus from a US$1.5 trillion tax cut and increased government spending ebbs. Trade tensions between the United States and China as well as slowing global economies are also hurting domestic activity, report agencies.The construction spending report extended the run of weak December economic data, that has included retail sales, housing starts, trade and home sales.
"The report is in line with the U.S. economy losing some steam at the end of the year," said Steven Shields, an economist at Moody's Analytics in West Chester, Pennsylvania.
Construction spending declined 0.6 percent after an unrevised 0.8 percent increase in November. Economists polled by Reuters had forecast construction spending rising 0.2 percent in December. Construction spending increased 1.6 percent on a year-on-year basis.
It rose 4.1 percent in 2018, the weakest reading since 2011. The release of the December report was delayed by a five-week partial shutdown of the government that ended on Jan. 25.
Based on the construction spending data, economists expect the government will pare its fourth-quarter gross domestic product estimate by at least one-tenth of a percentage point to a 2.5 percent annualized rate.
The government reported last Thursday that the economy grew at a 2.6 percent rate in the October-December period, slowing from the third quarter's brisk 3.4 percent pace.It is scheduled to publish revisions to the fourth-quarter GDP data at the end of the month. The stream of soft December reports set the economy on a slower growth path in the first quarter.
"We continue to see downside risk to our 1.5 percent growth forecast for the first quarter with much of the related monthly source data now reported through December," said Daniel Silver, an economist at JPMorgan in New York.
In December, spending on private construction projects fell 0.6 percent after surging 1.3 percent in November. Investment in private residential projects tumbled 1.4 percent after rebounding 3.4 percent in November.
The housing market has been weighed down by higher mortgage rates, expensive building materials as well as land and labor shortages. Residential investment contracted 0.2 percent in 2018, the worst performance since 2010.
Spending on private nonresidential structures, which includes manufacturing and power plants, gained 0.4 percent in December after declining 1.1 percent in November. Spending on nonresidential structures contracted in both the third and fourth quarters.
Investment in public construction projects fell 0.6 percent in December to an eight-month low after decreasing 1.0 percent in November. Spending on federal government construction projects plunged 2.2 percent after rising 0.3 percent in November.
Investment in state and local government construction projects fell 0.5 percent in December to an eight-month low after dropping 1.1 percent in November.