Construction Spending in Eight-Month Slide

ByABC News
January 3, 2007, 11:36 AM

Jan. 3, 2006 — -- According to figures released this morning, the nation's spending on construction has declined for a record eight months in a row.

The Commerce Department says that overall construction spending dropped by 0.2 percent during November to a seasonally adjusted annual rate of $1.18 trillion.

So what's causing this? The report measures how much we're spending to build all types of things -- from roads and schools to strip malls and McMansions, they're all in there.

What's been driving the sustained downturn in construction spending is a big pullback by builders on residential construction. In November, there was a 1.6 percent drop in residential construction spending. That's a massive one-month drop, but it came right after a 1.7 percent fall in October.

Builders are dealing with a massive backlog of unsold new homes, which is why they're not putting shovels in the ground on new construction right now. The national inventory of new homes is at a level it hasn't seen in years, and analysts say that's going to keep construction spending on a down slide for a few more months.

The recent downturn in home construction is taking a toll on the wider economy, too. Federal Reserve Chairman Ben Bernanke suggested that the downturn had shaved 1.2 percent off the GDP in the most recently reported quarter.

So how is spending on other types of construction faring? Fairly well, thank you. Nonresidential private construction was up 1.4 percent in November. That includes spending on things like offices (+1 percent), manufacturing facilities (+1.3 percent) and hotels (+3.9 percent).

When you look at government construction, November was solid -- up a solid 1 percent. Public spending includes things like highways and streets (+0.4 percent), schools (3.5 percent) and conservation (+6 percent).