Construction spending came in well above expectations, up 0.3% M/M in March led by a 2.0% M/M gain in non-residential construction. An 8.6% rebound in power facilities and gains in lodging, office and commercial space all boosted the headline – the latter three areas look unlikely to be sustained given rising vacancy rates, tighter credit standards and falling demand. Commercial construction growth, which first turned negative in 4Q08 and posted a 44% annualized decline in 1Q09, is likely to be a significant drag on growth over the balance of the year.

State and local spending on commercial projects also rebounded over the month but continues to fade in aggregate, down 11% Y/Y. Any positive impacts from the stimulus program are likely to be seen further down the road as projects are valued after being fully put in place.

Pending home sales rise on foreclosures
Private single-family homebuilding continued to exert a hefty drag, falling 8.6% M/M and 51% Y/Y as projects were further pared. Until demand for homes convincingly turns more positive and excessive inventories are worked down, builders will continue to be pressured to halt projects.

On a more positive note, pending home sales rose 3.2% M/M led by stronger gains in the South and West – two regions where foreclosures continue to surge and in turn, drive sales activity. First time homebuyers, lured by record affordability and an $8K tax credit, were behind the monthly gain according to the NAR. This increase suggests that April home sales could rise after a surprise drop in March. But somehow, the results bypassed D.R. Horton, which suffered its eighth quarterly loss in a row.

Bank would rather demolish homes than sell them
Turn to page A3 of today’s Wall Street Journal, “No Sale: Bank Wrecks New Houses”. Instead of trying to sell homes in a depressed market, a Texas bank decided to demolish 16 new and partially built houses acquired in Southern California through foreclosure. This actually made sense for the bank since the cost of finishing developing the homes would surpass what the homes could be sold for.