Spending on US projects drop 1.4%

Spending on US construction projects fell 1.4 per cent in December, capping the worst year on record. The decline was larger than forecast and followed a revised 1.2 per cent drop the prior month that was twice as large as previously reported, the Commerce Department said yesterday in Washington. For all of 2008, construction spending fell 5.1 per cent, the most since records began in 1993.

Housing starts and building permits fell to record lows in December and data on new-home sales indicates residential construction will fall further in coming months. At the same time, commercial projects are being scaled back as financing remains scarce and the economy enters a second year in a recession.

The lagged effect of the housing crash, the tightening of credit for new construction, the oversupply of retail space and now the manufacturing meltdown will all put severe pressure on non-residential spending for the foreseeable future, Ian Shepherdson, chief US economist at High Frequency Economics in Valhalla, New York, said in a note to clients.

A private report showed manufacturing in the US shrank less than forecast in January following a collapse in sales that caused inventories to swell at the end of 2008.

The Institute for Supply Management's factory index rose to 35.6 in January from 32.9 in the prior month, the Tempe, Arizona-based group said. Readings less than 50 signal a contraction and the index has been below that level since February 2008.

Economists had projected construction spending would fall 1.2 per cent after a previously reported 0.6 per cent drop in November. Estimates of the 47 economists surveyed by Bloomberg News ranged from declines of 0.3 per cent to 2 per cent. Another Commerce report yesterday showed consumer spending fell in December for a record sixth consecutive month, capping the worst year since 1961, a slump that is likely to persist as companies slash payrolls.

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