Construction spending falls more than expected

Construction spending fell more than expected in May, a sign the problems facing the nation's builders are far from over.

The Commerce Department said Wednesday that construction spending dropped 0.9 percent in May, nearly double the 0.5 percent decline that economists expected. Adding to the signs of weakness, activity in the past two months was revised lower.

Construction rose 0.6 percent in April, down from the 0.8 percent increase originally reported. A March increase of 0.4 percent was replaced with a decline of the same amount. That left the April gain as the only increase in the past eight months.

For May, the only strength came in nonresidential activity. Residential construction dropped sharply, and spending on federal, state and local projects also declined.

Residential building fell 3.4 percent after a flat reading the month before. Spending on private home building dropped 33.9 percent from a year ago amid the steepest slump in housing in decades.

Nonresidential construction rose 0.5 percent with spending on transportation, power projects and manufacturing all growing.

Total public construction dropped 0.6 percent, the biggest decline since a 1.7 percent fall in January. Spending on federal projects fell 0.3 percent, while spending on state and local projects dropped 0.7 percent.

The changes left total construction spending at a a seasonally adjusted annual rate of $964 billion, down 11.6 percent from a year ago.

A collapse in the housing market and the worst financial crisis in seven decades have hurt construction firms and helped push the country into the longest recession since World War II. Builders slashed spending on residential projects at the steepest pace in the first three months of this year since the spring of 1980.

The overall economy, as measured by the gross domestic product, shrank at an annual rate of 5.5 percent in the first quarter after a 6.3 percent drop in the final three months of last year, the steepest six-month decline in more than a half-century.

But economists believe the economy's nosedive has moderated to a drop of around 2 percent in the April-June quarter, and will begin to rebound in the second half of this year.

Los Angeles-based KB Home last week reported a loss of $78.4 million, or $1.03 per share, for the three months ending in May. But company officials said they expect a rebound in the fourth quarter of this year that will carry into next year.