Construction spending falls less than expected

WASHINGTON -- — Construction spending fell less than expected in November as record activity on nonresidential projects helped offset another steep decline in housing. But the outlook remains bleak as credit is tight for builders trying to stay afloat amid a recession entering its second year.

Construction spending fell 0.6% in November, the Commerce Department reported Monday, less than half the 1.3% decline economists had expected.

Although housing took another sharp tumble, dropping 4.2%, this was partially offset by a surprisingly strong 0.7% rise in nonresidential activity.

But the pickup in nonresidential construction -- which includes office buildings, shopping centers and hotels -- was seen as a temporary blip. Analysts said cutbacks in commercial construction were inevitable with builders having a hard time getting financing amid the worst financial crisis since the 1930s.

“We feel that it is only a matter of time before commercial construction starts to decline,” said Nigel Gault, chief U.S. economist at IHS Global Insight. “Once the projects already underway get completed, there is not much left in the pipeline.”

Gault said he expected a steep decline in construction spending this year as the severe housing slump continued and nonresidential activity began to fall because of the weak economy.

“The outlook for retail spending is very bad so we don’t need more retail space at the moment, and with employment falling sharply, we don’t need more office construction,” he said.

General Growth Properties Inc., the country’s second-largest mall owner, last month hired a commercial real estate firm to put prominent retail centers in Boston, New York and Baltimore up for sale in a desperate attempt to shore up its finances. The Chicago-based company is saddled with huge amounts of debt it took on during the market’s boom years when it aggressively bought assets.

Economists expect housing, which has been in a slump for two years, to continue to struggle in coming months as sales and home prices keep falling, hurt by the weak economy, tighter lending standards and rising mortgage foreclosures dumping more unsold homes on an already glutted market.

The 0.6% decline in total construction followed a 0.4% fall in October. The back-to-back declines left construction at a seasonally adjusted annual rate of $1.078 trillion, down 3.3% from a year earlier.

The 4.2% drop in home construction was the biggest setback since a 6.2% plunge in July and left residential activity at a seasonally adjusted annual rate of $328.3 billion, down 23.4% from a year earlier.

The nation’s home builders have been reporting large financial losses as demand keeps falling. Hovnanian Enterprises Inc., based in Red Bank, N.J., said last month that its fiscal fourth-quarter loss totaled $450.5 million as revenue fell 48%.