updated 4/1/2010 11:36:30 AM ET 2010-04-01T15:36:30

Builders cut back on new projects at a faster-than-expected pace in February and drove down construction spending to the lowest level in eight years. It was a fresh sign that the troubled real-estate market remains a sore spot for the economic recovery.

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The Commerce Department reported Thursday that spending on construction projects around the country fell by 1.3 percent to a seasonally adjusted annual rate of $846.23 billion. That was the lowest level since November 2002.

Economists were predicting builders would pare spending by 1 percent.

The weakness was widespread. Spending fell for home building, commercial ventures, including hotels and motels, and big government public works projects, such as highways and streets.

The 1.3 percent drop, followed a deeper 1.4 percent decline in January. It was the fourth month in a row that construction spending fell.

The housing market led the country into a recession and despite some improvements at the end of last year, the sector this year is showing fresh signs of weakness. Commercial real estate has been a drag on overall economic activity. Soured commercial real estate loans are a problem for banks, which remain wary of boosting lending to consumers and businesses.

Thursday's report suggested that the real-estate market will continue to be a problem spot for the economy, which is recovering from the worst recession since the 1930s.

Total spending on construction projects is down 12.8 percent from a year ago, underscoring the deep hole builders are struggling to emerge from.

When spending by governments is removed, spending by private builders on all types of construction projects dropped in February to a rate of $553.5 billion, the lowest since January 1999.

Private builders cut spending on housing projects in February by 2.1 percent, following a 1 percent increase in January. That pushed spending down to a rate of $250.8 billion in February, off 3.8 percent from last year.

In February the East Coast was slammed by snowstorms, which contributed to the weak construction spending figures for the month. Even so, most analysts predict a long and bumpy road ahead for builders to get back on firm footing.

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