Construction spending declines

Commerce Department says spending for projects in February fell 0.3%, but that was stronger than expected.

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By Kenneth Musante, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Construction spending fell in February, according to a government report released Tuesday, but the decline was less than expected.

The Commerce Department reported that total spending fell by 0.3%.

A consensus of economists polled by Briefing.com predicted a decline of around 0.9%.

"I wouldn't want to characterize this as a 'good news' report," but it won't significantly drag down the gross domestic product "unless consumer spending slows a lot more," said Robert Brusca, economist with FAO Economics.

Spending on private construction projects fell 0.5%, led by a decline in residential spending, while money put toward public projects rose 0.4%.

Spending on residential construction fell 0.9%, reflecting homebuilder losses due to plunging home prices.

In late March, the Census Bureau reported that new construction on privately owned homes fell to a 17-year low.

Homebuilder KB Home (KBH, Fortune 500) reported $223.9 million in writedowns due to lower home prices and a sharp decline in orders. Rivals Lennar Corp. (LEN, Fortune 500), Hovnanian Enterprises (HOV, Fortune 500) and Pulte Homes (PHM, Fortune 500) also saw losses.

"The pace of decline [in residential spending] is starting to ease," said Aaron Smith, senior economist with Moody's Economy.com. However, it has yet to show any improvement, he added.

Growth in private business construction, which has offset the declining housing market, is starting to slow as businesses try to keep spending low, said Smith.

Spending on private non-residential projects fell 0.1% in February, according to the Commerce Department.

"The weakness that was in private residential seems to have leaked out into the private non-residential [sector]," added Brusca. "We have lost the growth," he warned. To top of page

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