• News
  • Real Estate
Economic sore spot

Construction spending in February declines to lowest point since 2002

Related Special Reports

WASHINGTON -- Builders cut back on new projects 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.

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.

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.

"The bursting of the housing bubble continues to depress new home construction. The proliferation of foreclosures is a dark cloud that overshadows the construction industry," said Ken Mayland, president of ClearView Economics.

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.

Despite weakness in the commercial real estate market, the economy probably grew at a modest pace of around 3 percent in the first three months of this year -- helped by expansion in other areas such as manufacturing and exporting -- and business spending on equipment and software.

With consumer spending at a decent, though not red-hot pace, confidence is growing the recovery will be sustained.

User Response
0 UserComments