THE building of houses (ZT)

THE building of houses, which buoyed the American economy during the 2001 recession and then spurred the recovery, is no longer leading the economy up. Figures released this week by the Commerce Department showed that private construction spending set a record in September, but the third-quarter average was only 6.5 percent above the figure in the quarter a year ago, before adjusting for inflation. That matched the growth of the overall economy. By contrast, in 2004 residential construction spending was growing twice as fast as the overall economy. While home builders were raking in the money, other areas of construction were not nearly as strong. The most drastic change was in office construction, which set a record in December 2000, when spending hit a seasonally adjusted annual rate of $58 billion. By early 2003, the rate had fallen more than half, and most of that lost ground has not been made up. A result has been a fundamental shift in the proportion of private construction spending going to building homes and apartments. The proportion fluctuated around 60 percent of total spending for years, but now it is around 70 percent. That makes the economy potentially more vulnerable than it usually is if housing construction were to decline sharply. By contrast, office buildings now account for a little more than 4 percent of the private construction budget, half what they accounted for in 2000. Commercial building, of stores and malls, has not suffered as much, but it has lost a quarter of its market share. A person looking for signs of an American industrial revival - or at least an end to decay - could take heart from the figures for manufacturing construction. Its share of the total construction pie, above 9 percent a decade ago, fell to 3 percent but has now stabilized and even begun to edge up. In dollars, September spending was at an annual rate of $27.6 billion, up almost 40 percent from the low reached in February 2003. An area with little sign of a turnaround is utility construction. Spending on communications sites has stabilized, but power plant spending in September reflected an annual rate of $22.6 billion, the slowest pace since early 2001. Over all, the utility share of private construction spending is down to 4.2 percent, the lowest since the government began collecting such figures in 1993. There has been widespread talk of a cooling in the housing market, and mortgage applications have slowed in recent weeks - possibly an indicator of slower sales to come. But while spending on residential construction is no longer rising at 20 percent or more a year, as it was a year ago, it is still rising. Builders, it appears, are not worried.