Construction spending in 3rd straight drop

NEW YORK (CNNMoney.com) -- Construction spending fell in May, marking three consecutive months of decline, according to a government report released Tuesday.

The 0.4% decline, to a seasonally adjusted annual rate to $1.085 trillion, was better than the 0.6% drop forecast by a consensus of economists surveyed by Briefing.com.

That doesn't mean builders are out of the woods. Spending has dropped 6% from May of 2007, and for the first five months of 2008, construction spending topped $416.6 billion, down 5.1% from the same period last year.

Spending on private construction fell in May, declining 0.7% to an annual rate of $784.2 billion.

Private residential construction spending declined for the 27th consecutive month in May, droppping 1.6% to a seasonally adjusted annual rate of $378.9 billion. But private nonresidential spending climbed 0.2% to an annual rate of $405.3 billion.

Private nonresidential construction spending has risen every month since February. That uptick may be shortlived, according to Mike Larson, an analyst with Weiss Research. He predicts that the downturn in residential spending will likely spill over to the commercial sector as oil prices continue rising and consumer spending gets further squeezed.

"We're not going to see a giant pullback on the order of residential spending, but we will see spending in commercial construction slow in the months ahead," Larson said.

In May, public construction spending climbed 0.4% to a $301.1 billion annual rate.

The Commerce Department also reported that construction activity fell by a revised 0.1% in April.

The spending figures for residential and nonresidential spending are used by economists to forecast the investment component of quarterly GDP.