WASHINGTON — Construction spending fell by a smaller-than-expected amount in September as a rebound in nonresidential activity helped offset further weakness in home building.

The Commerce Department on Monday reported that construction spending dropped by 0.3 percent in September, less than the 0.8 percent decline many economists had been expecting. Spending had risen by 0.3 percent in August after a huge 2.4 percent plunge in July.

The weakness in September was led by a 1.3 percent drop in housing construction, which has fallen every month but two over the past 30 months. Spending on government projects fell by 1.3 percent, the biggest setback since January.

The country in undergoing the worst housing slump in decades, a downturn that has triggered the nation's biggest financial crisis since the 1930s as banks have struggled to cope with billions of dollars of losses on mortgage lending.

The Bush administration won congressional passage on Oct. 3 of a $700 billion rescue package designed to stabilize financial institutions by buying up bad assets and through direct government purchases of stock in banks. Both programs are aimed at boosting banks' balance sheets in an effort to get them to resume more normal lending.

However, many economists believe the massive government support effort will not come in time to keep the country from experiencing the most severe recession in decades.

For September, the 0.3 percent fall in overall construction was the third drop in the past four months. It left total building activity at an annual rate of $1.06 trillion in September, down 6.6 percent from the level of a year ago.

The 1.3 percent fall in housing construction left activity at a seasonally adjusted annual rate of $336.5 billion, down 27.7 percent from a year ago, underscoring the severity of the slump in this industry. After enjoying record sales for five consecutive years, housing has been struggling over the past two years with falling sales and prices and rising mortgage foreclosures.

The housing slump is likely to continue due to tight credit markets, souring consumer confidence in the overall economy and rising unemployment.

Centex Corp. last week said it narrowed its fiscal second-quarter loss, but the Dallas-based company saw revenue and new home orders plunge, while land developer and homebuilder Brookfield Homes Corp. said it swung to a loss in the third quarter. Pulte Homes Inc. late last month reported a narrower third-quarter loss, but the Bloomfield Hills, Mich.-based company's revenue plunged and it booked more charges on land and unsold homes.

Private nonresidential building activity rose 1.2 percent in September to an annual rate of $415.2 billion following two months of declines. But economists are worried that the spreading weakness in the overall economy and a severe credit squeeze will depress nonresidential building activity going forward. For September, office buildings and the category which includes shopping malls both showed gains.

Spending for public building projects dropped by 1.3 percent in September, the biggest setback since January, leaving spending in this category at an annual rate of $308.4 billion. Spending on federal projects fell by 7 percent to an annual rate of $22.7 billion while spending for state and local projects was down 0.8 percent to an annual rate of $285.7 billion.

There is concern that the weak economy will cause state and local governments to cut back on spending, making the downturn more severe. Democrats in Congress are pushing for a second economic stimulus bill that would include money to support spending on highways, bridges and other infrastructure projects.

Source: Associated Press, November 3, 2008