updated 12/1/2006 2:36:25 PM ET 2006-12-01T19:36:25

Construction activity in October plunged by the largest amount since the recession in 2001 as home building fell for a record seventh consecutive month.

The Commerce Department reported that building activity dropped 1 percent to a seasonally adjusted annual rate of $1.18 trillion in October following a 0.8 percent fall in September. It was the biggest decline since a similar 1 percent drop in September 2001, a month when the country was hit by the terrorist attacks as it was mired in a recession.

Residential construction fell for a seventh month in October, the longest stretch of weakness on record. The 1.9 percent drop in this category in October was the biggest decline since July.

The weakness in housing was compounded by a drop in nonresidential construction, which fell by 0.7 percent, the second straight decline in this category.

Only government construction activity showed strength in October, rising by 0.8 percent to an all-time high of $273.1 billion at an annual rate.

The new report served to underscore the significant reversal in the fortunes of the housing industry, which had been one of the economy’s standout performers as the lowest mortgage rates in four decades pushed sales up to record highs for five straight years.

Demand, however, has cooled this year as buyers have balked at the huge run-up in prices of recent years. Builders have been offering a host of incentives from kitchen upgrades to free swimming pools to move a record backlog of unsold homes.

The government reported this week that the slowdown in housing trimmed 1.16 percentage point from economic growth in the July-September quarter, a period when the economy slowed to a lackluster growth rate of 2.2 percent.

The 1.9 percent fall in private residential construction pushed this category down to an annual rate of $597.1 billion, 9.4 percent below the level of a year ago.

Non-residential activity fell 0.7 percent to an annual rate of $308.2 billion. Even with the decline, non-residential building was still 16.4 percent above the level of a year ago.

Economists are hoping that strength in the nonresidential sector will help to cushion the drag from the steep fall in housing activity. But in October, there were declines in spending on office buildings, shopping centers and communication projects.

But analysts said they expected nonresidential activity to rebound as a number of sectors, including hotels and motels, continued to show strength.

“I think there is still plenty of life left in hotel, hospital, energy-related and public spending, but single-family construction will remain in a free-fall for several more months,” said Kenneth Simonson, chief economist at the Associated General Contractors of America.

The 0.8 percent rise in public construction reflected a big 11.6 percent jump in spending on federal building projects which offset a flat reading for state and local projects.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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