Ahead of the Bell: Construction Spending

WASHINGTON - Construction spending likely fell for a sixth straight month in March as the severe recession continues to take a toll on builder activity.

Wall Street is looking for construction spending to fall by 1.5 percent following a 0.9 percent decline in February, according to a consensus of economists surveyed by Thomson Reuters. The Commerce Department is scheduled to release the report on construction spending at 10 a.m. EDT Monday.

The 0.9 percent decline in February was led by a 4.3 percent drop in housing, pushing home construction to the lowest level in 11 years.

Home builders have cut back sharply, but they face a rising glut of unsold homes as record mortgage foreclosures dump more properties on the market.

Nonresidential construction rose 0.3 percent in February, posting a slight rebound after a 4.3 percent drop in January that had been the biggest decline in 15 years.

With the financial sector embroiled in its worst crisis in seven decades, banks have tightened their loan standards, making it harder to get financing for shopping centers and other commercial projects.

The Federal Reserve will release results on Thursday of "stress tests" for the nation's 19 largest banks, providing guidance on which banks may need more government support to withstand a more severe recession. The banks that need more capital will be given six months to raise it on their own and if they are unable to do so, the government will step in with support from the $700 billion financial rescue fund.

The rescue program has provided more than 500 banks with capital injections as a way of bolstering their balance sheets so that they can resume more normal lending to consumers and businesses. However, that effort has failed to produce significant gains in many lending categories.

The initial stress test results showed that Citigroup and Bank of America would need to raise more capital, sources have told The Associated Press. Investors have also grown concerned about regional banks who carry risky loans on their books in such areas as mortgages, credit cards and commercial real estate.

Many analysts are worried that the commercial real estate market could topple into the worst crisis since the last great property bust of the early 1990s. Delinquency rates on loans for hotels, offices, retail and industrial buildings have risen sharply in recent months and are likely to soar through the end of 2010 as companies lay off workers, downsize or close.

Economists, however, are more hopeful that the three-year slide in housing could be nearing a bottom although they don't see a significant rebound for some time.

New home sales have plunged 74 percent from their peak in July 2005. Sales of new homes hit a record low in January, posted an increase in February and then edged down 0.6 percent in March to a seasonally adjusted annual rate of 356,000 units.

Analysts said that it appears that the steep slide in new home sales is bottoming out. Prices, however are still falling with the median price of a new home sold in March dropping to $201,400, a 12 percent decline from a year earlier.

The demand for new homes appears to be recovering faster than demand for previously occupied homes. In March, sales of existing homes fell 3 percent to an annual rate of 4.57 million from a downwardly revised pace of 4.71 homes in February, the National Association of Realtors reported.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.