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Construction spending plunges, economic index drops, too

11:59 AM, Sep 4, 2012   |    comments
Mike Glenn works on a cockpit assembly line at Detroit Manufacturing Systems' automotive components assembly plant in Detroit in August 2012.
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WASHINGTON (AP) - The Institute of Management Supply's manufacturing index, a broad gauge of economic activity, held steady at 49.6 in August, just below June's reading of 49.8. A reading below 50 indicates economic contraction.

Perhaps more of a disappointment is July's unexpected 0.9% plunge in construction spending after a 0.4% gain in June, the Commerce Department said Tuesday. Construction activity is roughly half of what economists consider to be healthy.

June's decline was the biggest one-month drop, dragged lower by a big drop in spending on home improvement projects. It follows three straight months of gains driven by increases in home and apartment construction.

New home construction rose again in July, but spending on home renovation projects fell by 5.5%. Spending was down for non-residential projects and government construction projects as well.

The June decline left spending at a seasonally adjusted annual rate of $834.4 billion, up 11.8% from a 12-year low hit in February 2011.

As for a broader gauge of the U.S. economy, factory activity shrank for the third straight month in August as new orders, production and employment all fell. The report adds to other signs that manufacturing is slowing, the ISM said Tuesday.

The ISM, a trade group of purchasing managers, says its manufacturing activity index is at the lowest reading in three years. Factories have been a key source of jobs and growth since the recession ended in June 2009. But the sector has shown signs of weakness in recent months.

The report showed factories kept hiring in July but at a slower pace. And production dropped sharply to 47.2.

Those numbers stand in stark contrast to a report showing U.S. home prices jumped 3.8% in the 12 months ending in July, the biggest year-over-year increase in six years.

CoreLogic, a private real estate data provider, said Tuesday that home prices also rose 1.3% in July from June. That's the fifth straight increase in both the monthly and year-over-year price indexes.

CoreLogic's price index is the third national index to show steady increases. The Standard & Poor's/Case-Shiller index posted its first annual increase in nearly two years last week. And a federal government housing agency has also reported annual increases. They all suggest a steadily recovering housing market

The recent improvements have been widespread. Of 100 large cities CoreLogic tracks, only 23 posted year-over-year declines in July. That's four fewer than in June.

Prices are rising partly because the supply of available homes remains tight.

Still, the housing market's recovery has a long ways to go before prices are back where they were before the recession. On average, they're 27% below their peak in April 2006, CoreLogic says.

The states with the biggest gains the past 12 months were Arizona, Idaho, Utah, South Dakota and Colorado, CoreLogic said. In Arizona, prices have risen 16.6% since July 2011. Idaho has posted a 10% gain in that time.

Not all states are seeing increases. In Delaware, prices dropped 4.8% in the 12-month period. Prices fell 4.6% in Alabama in that stretch.

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