Construction spending plummeted in 2007

WASHINGTON - Construction spending fell by a record 2.6 percent in 2007 — mostly reflecting record cutbacks in home-building projects by private companies.

Private companies last year slashed residential projects by 18.3 percent, the largest drop on records dating back to 1993, the Commerce Department reported Friday. Such spending was flat in 2006 and was up by 13.5 percent in 2005.

The new figures were the latest evidence of the damage wrought by the housing bust.

The 2.6 percent drop in total construction spending by both private builders and government last year came after a 5.3 percent increase in 2006 and a 10.6 percent jump in 2005, the department said.

The previous record drop in total construction spending was 1 percent in 2002. The previous record decline in spending by private builders on housing projects was 4.3 percent in 1994.

For the month of December, construction spending dropped 1.1 percent, the most in 15 months.

The decline was twice as big as the 0.5 percent drop economists were forecasting. The 1.1 percent decline followed a 0.4 percent decrease in November.

The weakness was led by a 2.8 percent decline in spending by private builders on housing projects. That came after a 3 percent decline in November and marked the 22nd consecutive monthly decline in such spending, underscoring the problems builders are facing.

The housing bust has led to sagging sales and weak home prices. Harder-to-get credit has thwarted some would-be home buyers, adding to a pileup of unsold homes. Builders have cut back on new building projects as they try to get rid of the backlog. They also have sweetened the pot, offering various incentives to lure buyers.

Government reduced spending on a range of building projects in December, slicing spending on public works projects by 1.5 percent in December. That compared with a 1.3 percent rise in November.

There was a bit of a bright spot in the December report: Spending by private builders on commercial projects, such as office buildings, rose 1.3 percent after a 1.8 percent increase in November.