The harsh winter weather was again to blame for bleak economic figures, this time in the area of construction spending, according to numbers released (PDF) Tuesday by the United States Department of Commerce.
According to the federal department, construction spending only rose by a very small 0.1 percent in the month of February. The slight increase provided the construction sector with a seasonally adjusted annual rate of more than $945 billion, nearly nine percent higher than the level same time year ago.
The incremental percentage increase can be attributed to a 1.2 percent boost in non-residential projects, including a 3.5 percent jump in hotel and motel construction. Furthermore, government project spending rose by 0.1 percent, while residential construction declined by 0.8 percent, the largest drop since July.
Most economists project construction will increase throughout 2014, but the pace of the increases are forecasted to slow, the Associated Press noted. A significant number of economists also see sales of new and existing homes to improve as the spring buying season nears, a much needed boost after a severe winter depressed home sales, hurt retail business and damaged various trees, power lines, roads and other aspects in cities and neighborhoods.
Another reason why economists think sales will improve is because the economy is recovering, which will lead to more Americans finding jobs and recuperate from last year’s higher federal taxes and small cuts in government spending.
Although government data indicates that the current housing market is getting better, it is still far from its highs prior to the Great Recession and housing collapse in 2006.
Mortgage rates will only steadily rise this year after the Federal Reserve tapered off its monthly bond-buying purchases in order to keep long-term rates low. Fed Chair Janet Yellen conceded that monetary action is still needed because the economy is weak and some economic data suggests the labor market today is worse than in any other recession.
The central bank doesn’t expect to raise a key short-term rate anytime soon because low rates will help spur economic growth, borrowing and spending.
“I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely held by my fellow policymakers at the Fed,” Yellen told attendees at a national conference on community reinvestment in Chicago.
Yellen added:
“They are a reminder that there are real people behind the statistics. The past six years have been difficult for many Americans, but the hardships faced by some have shattered lives and families. Too many people know firsthand how devastating it is to lose a job at which you had succeeded and be unable to find another; to run through your savings and even lose your home.”
Prior to Yellen’s remarks, investors were concerned that the central banks would begin to start raising rates later this year.
Contrarian investors argue that the Fed is inflating a housing bubble and owns the mortgage market. Peter Schiff, president of Euro Pacific Capital and author of “Crash Proof,” told Forbes magazine last year that the Fed’s stimulus support in the bond and housing market will create a crash because interest rates will increase dramatically, which will leave financial institutions, lenders and mortgage instigators with homes and unprofitable loans.
David Stockman, former budget director during the Reagan administration, also thinks the housing market is in a bubble because of cheap money.
“I would say we have a housing bubble…again. We don’t have a real organic sustainable recovery because in a world of medicated money by the central bank, things aren’t what they appear to be,” Stockman told Yahoo! Finance “It’s happening in the most speculative sub-prime markets, where massive amounts of ‘fast money’ is rolling in to buy, to rent, on a speculative basis for a quick trade. And as soon as they conclude prices have moved enough, they’ll be gone as fast as they came.”
Other important dates for investors to market on their calendars:
- Apr. 4: Non-farm payrolls
- Apr. 8: Consumer price index (CPI)
- Apr. 14: U.S. retail sales.
