SPENDING on United States construction projects fell more than forecast in March, reflecting the biggest one-month drop in home building 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 on Thursday in Washington.
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.
"Housing has been in a recession for a while, and is going to stay weak," David Resler, chief economist at Nomura Securities International Inc in New York, told Bloomberg News before the report. "The heavy inventory of both new and existing homes will surely encourage builders to continue scaling back on new projects."
Total construction spending was forecast to drop 0.7 percent after an originally reported 0.3 percent decrease in February, according to the median estimate of 52 economists surveyed. Projections ranged from a 1.5-percent drop to an increase of 0.2 percent.
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, the Commerce Department reported. Home building 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, Thursday's report showed.
Non-residential construction, including public projects, rose 1.3 percent, 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.
Policy makers from the Federal Reserve, who lowered the benchmark interest rate by a quarter point to 2 percent on Wednesday, said in a statement that 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 US paint retailer, said its first-quarter profit dropped 30 percent.
Housing "will not show year-over-year improvement during the remainder of 2008," CEO Christopher Connor said on a conference call with investors on April 22.