Construction Spending in U.S. Fell 0.3% in February (Update2)

April 1 (Bloomberg) -- Spending on U.S. building projects fell in February for a fifth consecutive month as the housing recession dragged on and construction of offices and utility plants declined.

The 0.3 percent decrease, less than economists forecast, followed a revised 1 percent drop in January that was smaller than initially reported, the Commerce Department said today in Washington. Building of private non-residential projects including offices declined for a third straight month.

Homebuilding is likely to slow economic growth for a third year as sales continue to fall and builders delay new projects to work off nearly 10 months of inventory. Stricter lending standards spawned by subprime mortgage defaults now are restraining commercial projects, which until recently were a source of strength.

``Residential construction is down and we're starting to see weakness in non-residential as well,'' said Robert Dye, senior economist at PNC Financial Services Group in Pittsburgh. ``As office-using employment has eased and credit availability has been tight, it's not a surprise to see office construction easing. Credit markets are still under stress and sorting themselves out.''

A private survey today showed manufacturing in the U.S. contracted less than forecast in March as companies benefited from growing exports.

Manufacturing Index

The Institute for Supply Management's manufacturing index increased to 48.6 from 48.3 in February. Fifty is the dividing line between contraction and expansion.

Economists had forecast construction spending would fall 1.0 percent after a previously reported 1.7 percent decline in January, according to the median of 55 forecasts in a Bloomberg News survey. Estimates ranged from a 2 percent decline to a 2 percent gain.

Private residential construction spending dropped 0.9 percent, marking a second year of monthly declines, after a 1.9 percent fall the prior month.

Tighter credit has also made it harder for developers and companies to finance commercial projects. Both business and consumer confidence have weakened as the economy moves closer to a recession, prompting executives and consumers to hold off on major purchases and investments.

Non-Residential Construction

Non-residential construction, including public projects, gained 0.1 percent in February, compared with a 0.8 percent decrease the prior month. Public construction rose 0.4 percent, led by increases in highway projects, and water and sewage facilities.

Private non-residential construction fell 0.1 percent, reflecting a slowdown in spending on hospitals, schools and power plants, the report showed. Building of factories rose 2.7 percent, it showed.

Homebuilders such as KB Home, the fifth largest in the U.S., are losing money and scaling back projects as home sales and prices continue to fall, pointing to further declines in housing starts.

``Our industry continues to confront a growing oversupply of new and resale homes, tight mortgage lending conditions and a highly competitive pricing environment,'' KB Home Chief Executive Officer Jeffrey Mezger said March 28 in a statement. ``We do not anticipate meaningful improvement in these conditions in the near term.''