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Construction spending plunges in January by most in 14 years

SHARE Construction spending plunges in January by most in 14 years

WASHINGTON — Construction spending in January took its biggest nosedive in 14 years, as problems spread beyond the ailing home-building sector.

The Commerce Department reported Monday that spending plunged by 1.7 percent. Although builders slashed spending on residential projects, the weakness was fairly widespread. There were cutbacks in spending on, among other things, hotels and motels, highways and various projects by state and local governments.

The latest showing on construction activity was worse than economists were expecting. They were forecasting a smaller decline of around 0.8 percent.

The 1.7 percent plunge in total construction spending came after a 1.3 percent decline in December. It was the largest drop since January 1994, when construction spending plummeted by 3.6 percent.

The one-two punch of the housing and credit crises is threatening to push the country into a recession or possibly has done so already.

Harder-to-get credit has thwarted some would-be home buyers, adding to the glut of unsold homes and aggravating the housing industry's woes.

Spreading problems are slowing other sectors of the economy and causing employers to restrain hiring.

To bolster the economy, the Federal Reserve has been cutting a key interest rate since September. It recently turned more forceful, slashing rates by an aggressive 1.25 percentage points over the span of just eight days in January. Fed Chairman Ben Bernanke has signaled another reduction when the Fed meets next on March 18.

The economy's troubles are making people and businesses more cautious in their spending and investing, thus weakening the economy.

The economy barely grew in the final three months of this year — logging growth at a pace of just 0.6 percent. Many economists believe growth will be even slower in the Janaury-to-March quarter. And, a growing number of analysts think the economy contracted during this period. Under one rule, the country is considered to be in a recession if economic activity shrinks for six straight months.

Monday's report showed that private builders cut spending on housing projects by 3 percent in January, the most since October.

Spending by private builders on a range of commercial construction projects, including transportation facilities, communications facilities, hotels and motels, dropped by 1.2 percent in January. That was the largest decline since June 2005.

Government spending on public works projects dipped 0.2 percent in January. All that weakness, however, represented cutbacks in spending by state and local governments. The federal government boosted spending.