Economy

Construction spending by federal, state and local governments has reached record levels, lifting the economy and employing some blue-collar workers despite a collapse in home building. Governments are on track to spend a record $300 billion this year on schools, roads, bridges and other projects, the Census Bureau reports. That's a 7% increase on top of a 12.4% jump last year, the biggest increase since 1993, when the agency began tracking construction spending. In a dramatic reversal, government projects now generate more spending than construction of homes and apartments. By contrast, in 2005, residential construction generated a record $481 billion — more than twice what governments spent. The government construction boom is winning plaudits from economists and fiscal conservatives. "Tax rebates peter out. Building a new bridge helps the economy long after the work is done," says University of Oregon economist Mark Thoma.

Mortgage applications fell last week despite a drop in interest rates, the Mortgage Bankers Association said Wednesday. The fall in application volume is the latest sign of a struggling housing market. On Tuesday, a Commerce Department report showed construction of homes and apartments fell in July to the lowest level in more than 17 years. And while fewer new homes are being built, fewer customers are also refinancing existing mortgages.

Consumers should brace for the biggest increase in food prices in nearly 20 years in 2008 and even more pain next year due to surging meat and produce prices, the Agriculture Department said Wednesday. Food prices are forecast to rise by 5% to 6% this year, making it the largest annual increase since 1990. Just last month The forecast, if correct, would be the third straight year where food prices have surged at least 4%. USDA also forecast increases this year of 9.5% for cereals and bakery products, a 14% surge for eggs and a 13.5% hike for fats and oils.