Construction spending falls more than expected

/ Source: The Associated Press

U.S. construction activity fell for a seventh consecutive month as spending on both residential and commercial projects declined, a worrisome sign that lingering troubles in construction will act as a drag on the overall economic recovery.

The Commerce Department said Monday that construction spending in the U.S. dropped 0.6 percent in November, a bigger decline than the 0.4 percent drop that economists had been expecting.

The weakness was widespread with spending on housing falling by the largest amount since June and non-residential building dipping for an eighth consecutive month. While the overall economy began growing again this past summer, the worry is that weakness in such areas as construction will dim prospects for a recovery strong enough to reduce double-digit unemployment.

The 0.6 percent drop in construction activity in November followed a 0.5 percent decline in October which was revised downward from an original estimate showing a much smaller dip. The seven straight declines pushed construction spending down to a seasonally adjusted annual rate of $900.1 billion, the slowest pace in more than six years and 13.2 percent below the level of activity a year ago.

Private residential activity dropped by 1.6 percent in November to an annual rate of $250.7 billion after a big 4.8 percent surge in October, an increase that had been driven by builders trying to finish projects before the original November expiration for a popular home buyers tax credit, a tax break that has since been extended by Congress.

Spending on commercial projects from office buildings to factories and shopping centers edged down a slight 0.03 percent, the eighth straight drop.

Commercial building activity has been hurt by a severe credit crunch as developers are having trouble getting new financing from banks leery to extend further credit as default rates rise sharply for commercial real estate projects. The November drop pushed nonresidential building down to an annual rate of $330.5 billion.

Spending on government projects fell 0.4 percent to a rate of $318.8 billion reflected a 0.5 percent fall in state and local construction projects, an area that has been hurt by deep budget shortfalls caused by the recession. Spending on federal construction projects rose by 1.1 percent in November.