Construction activity dips as housing falls for record eighth straight month

WASHINGTON -- Construction activity showed further weakness as spending on homes dropped for a record eighth consecutive month.

The Commerce Department reported Wednesday that building activity edged down 0.2 percent in November to a seasonally adjusted annual rate of $1.18 trillion. That followed declines of 0.3 percent in October and 0.8 percent in September.

The weakness was led by a 1.6 percent plunge in home construction, which followed an even bigger 1.7 percent drop in October. Analysts believe home building will remain weak for several more months as builders struggle to work down a huge backlog of unsold homes.

The slump in housing has been a big drag on the overall economy, trimming 1.2 percentage points off growth in the July-September quarter, when the economy slowed to a lackluster 2 percent growth rate. The slump in October and November indicates housing will remain a serious drag in the final three months of the year.

The housing decline pushed spending on residential buildings down to a seasonally adjusted annual rate of $589.3 million in November.

Housing has been in a slump this year after a prolonged boom that was fueled by the lowest mortgage rates in more than four decades. However, that boom triggered increased speculation, driving home prices up sharply in many parts of the country.

Spending on nonresidential projects showed strength last month, rising 1.5 percent to an all-time high of $316.5 billion at an annual rate. The increase reflected gains for office buildings, hotels and shopping centers.

The category that covers hotels and resorts was up 71.4 percent in November compared with November 2005, while construction of office buildings rose 30.9 percent from a year ago and hospitals and other health-care facilities saw a 19.8-percent jump from a year ago.

Analysts said these solid gains in nonresidential activity should continue in the new year but would be offset by a continued slump in housing outside of apartment building.

"Energy and power-related construction, hotels, hospitals and rental housing will all perform well while single-family and condo construction will sink the totals," said Ken Simonson, chief economist for the Associated General Contractors of America.

Government building activity rose by 1 percent to an all-time high of $278.4 billion at an annual rate. That reflected a 1.1 percent rise in state and local building projects which hit a record of $258.7 billion. This increase offset a 0.8 percent fall in spending on federal projects which dipped 0.8 percent to a rate of $19.7 billion.