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Construction spending drops in March

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WASHINGTON -- Spending on U.S. construction projects fell in March, reflecting the biggest one-month drop in homebuilding on record.

The 1.1 percent decrease followed a 0.4 percent gain the prior month that was previously reported as a decline, the Commerce Department said Thursday.

Stricter credit rules as banks try to minimize delinquencies may deepen the building slump.

Residential construction declined in the first quarter by the most since 1981, and non-residential construction had the first drop since 2005, a government report showed yesterday.

"With prospects of a soft economic outlook, total construction spending is on track to subtract from overall economic growth for the foreseeable future," said Sam Bullard, an economist at Wachovia Corp. (NYSE: WB) in Charlotte, N.C.

The economy grew at a 0.6 percent annual pace in the first quarter, reflecting a gain in inventories as consumers retrenched and companies cut investment, Commerce reported Wednesday.

Homebuilding fell at an annual rate of 27 percent and took away 1.23 percentage points from economic growth.

Housing has subtracted from gross domestic product since the first three months of 2006.

Private residential construction spending fell 4.6 percent in March, the biggest decline since comparable records began in 1993, after a 0.2 percent increase the prior month, Commerce's Thursday report showed.

Non-residential construction, including public projects, rose 1.3 percent. It was up 12 percent from a year earlier.

Public construction increased 0.6 percent, led by work on schools and parks. Private non-residential construction rose 1.9 percent.

Federal Reserve policy makers, who lowered the benchmark interest rate by a quarter point to 2 percent Wednesday, said in a statement the housing downturn is "likely to weigh on economic growth over the next few quarters."

A glut of unsold properties will persist as buyers are scared away by declines in home values.

Sales of previously owned homes posted the seventh drop in eight months in March, and new-home purchases plunged to the lowest level in almost 17 years, reports last week showed.

Construction-related businesses are struggling.

Sherwin- Williams Co., the largest U.S. paint retailer, said its first- quarter profit dropped 30 percent.

Housing "will not show year-over-year improvement during the remainder of 2008," Chief Executive Officer Christopher Connor said on a conference call with investors on April 22. "We are also not expecting help from the commercial construction market. Forecasts for U.S. commercial construction have recently turned negative."

Construction spending figures are based on expenditures over the life of a project, with about 75 percent of value accounted for in the first four months.

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