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Plunge in spending on government projects swamps strength in homebuilding

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Spending on U.S. construction projects fell in March as the biggest drop in government projects in more than a decade overwhelmed strength in homebuilding.

Construction spending fell 1.7 percent in March, compared with February, the Commerce Department reported Wednesday. It marked the second decline in the past three months.

Even with the recent weakness, construction activity was 4.8 percent higher in March than a year ago at a seasonally adjusted $856.7 billion.

For March, private residential construction rose 0.4 percent, the only major sector showing a gain. Government construction activity fell 4.1 percent, the biggest drop since March 2002, while private nonresidential building was down 1.5 percent.

The head of the Associated Builders and Contractors of New Mexico found promise in the report.

“Although non-residential construction spending declined in March, ABC’s chief economist, Anirban Basu, has indicated to us that leading economic indicators generally remain positive, suggesting that improved performance is still possible this year,” said Roxanne Rivera in a statement.

Added Jim Folkman, executive vice president of the Albuquerque-area homebuilders group, HBA, “We always have concerns when overall construction spending declines since the entire economy is ultimately impacted by that shift.

“In this case we’re taking some comfort in the fact that residential construction continued to improve, though modestly,” he said. “Residential construction seems to be headed in the right direction in Albuquerque as well, but at the same time I think it remains a work in progress and therefore is a little more fragile than we would like.

“The next quarter or two will tell us if we’re actually recovering in a long-term, meaningful way,” Folkman said.

The weakness in government activity occurred at all levels. Spending by state and local governments was down 4.2 percent while spending by the federal government on construction projects was down 1.7 percent. Economists are expecting federal activity to be reduced in coming months as different agencies cope with across-the-board spending cuts that went into effect on March 1.

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