Monday, March 3, 2008

Construction Spending Dropped The Most In 14 Years

Construction Spending in the U.S. Decreased 1.7% in January

By Courtney Schlisserman

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Spending on U.S. building projects in January fell by the most in 14 years as the housing slump worsened and construction slowed on hotels and highways.

The 1.7 percent decrease, more than twice the fall economists forecast, followed a revised 1.3 percent drop in December that was steeper than initially reported, the Commerce Department said today in Washington. Construction spending has contracted for four straight months.

Homebuilding is in a third year of declines as sales weaken and builders halt new projects to lighten inventories. Stricter borrowing rules and lower demand are also restraining commercial developers, creating an even greater drag on growth.

``The collapse in non-residential building is the next shoe to drop,'' Joseph Brusuelas, chief economist at IDEAglobal Inc. in New York, said before the report. ``Right now we have a very weak investment environment.''

Economists forecast construction spending would fall 0.7 percent after a previously reported 1.1 percent decline in December, according to the median of 48 forecasts in a Bloomberg News survey. Estimates ranged from a drop of 1.5 percent to a 0.2 percent gain.

Private residential construction spending dropped 3 percent after a 2.6 percent decline the prior month.

``Ceaseless talk of a recession continues to dampen the mood of consumers,'' Robert Toll, chief executive officer of homebuilder Toll Brothers Inc., said in a conference call Feb. 27. ``This drumbeat, coupled with concerns over mortgages, the direction of home prices, and foreclosures, has kept pent-up demand on the sidelines.''

Plants, Offices

Weakness has spread from the housing market to other parts of the economy. That includes construction of plants and office buildings, which are affected by businesses' reticence to spend in slower economic times.

``After growing robustly through much of 2007, non- residential construction is likely to decelerate sharply in coming quarters as business activity slows and funding becomes harder to obtain, especially for more speculative projects,'' Federal Reserve Chairman Ben S. Bernanke said last week in testimony before Congress.

Non-residential construction, including public projects, fell 0.8 percent in January, compared with 0.5 percent decrease a month earlier. Public construction declined 0.2 percent, led by a drop in road-building projects.

Private non-residential construction fell 1.2 percent, reflecting a slowdown in hotels, hospitals and power plants, the report showed.

Some Optimism

Some builders have a more optimistic outlook on business.

``The run-up in non-residential construction has been very restrained and gradual and I don't see any likelihood of a sharp downturn,'' Frank MacInnis, chief executive officer of Emcor Group Inc., said in a Bloomberg Television interview Feb. 27.

Emcor, a construction and facilities management company, had a record amount of backlogs going into this year, MacInnis said. The company is helped by demand from clients in the oil and gas business, he said.

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