Construction, Midwest Manufacturing Stronger Than Expected in April

Both construction spending and Midwest manufacturing activity came in stronger than expected in April, fueling speculation that the Federal Reserve would keep interest rates unchanged for a while.

U.S. construction spending eked out a small unexpected 0.1% gain on solid public and commercial building while residential activity remained weak, a government report showed. Economists had expected no change in April, according to the median forecast of analysts polled by Reuters.

Recent Chicago PMI Reports

Index Level
2006 - Dec 51.6 + 0.4
2006 - Jan 48.8 - 2.8
2007 - Feb 47.9 - 0.9
2007 - Mar 61.7 + 13.8
2007 - Apr 52.9 - 8.8
2007 - May 61.7 + 8.8
source: Haver Analytics

Meanwhile, the National Association of Purchasing Management-Chicago business barometer rose to 61.7 from 52.9 in April. Economists had forecast the index at 54.0. A reading above 50 indicates expansion.

Contruction spending in March was revised up to a 0.6% gain from a previous 0.2% advance, according to the U.S. Commerce Department.

Construction spending in April was down 2% from the same time a year ago.

Other year-on-year comparisons were revealing. Residential building was down 14.1% from a year ago, while nonresidential activity was up 12.7%.

Private nonresidential spending, which captures most industrial activity, was up 1.5% in April, after larger gains the two prior months.

The public sector also helped offset residential weakness. Federal construction spending was up 0.7% as was spending by state and local governments.