By Martin CrutsingerWASHINGTON -- Construction spending plunged more than twice as much as expected in January, led by the largest drop in nonresidential activity in 15 years. The Commerce Department reported Monday that overall construction spending dropped 3.3% in January, the fourth straight monthly decline, with weakness in all major categories of the building industry. Wall Street economists surveyed by Thomson Reuters expected a 1.5% drop in spending. Residential construction fell 2.9% and nonresidential activity dropped 4.3%, the biggest decline since January 1994. Homebuilders are struggling through the worst housing slump in decades. Builders have cut back sharply, but face a rising glut of unsold homes as record mortgage foreclosures dump more properties on the market. Until recently, the weakness in home construction had been partially offset by strength in nonresidential building. But with the financial sector facing 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. Government building also fell. The 2.3% came as states and municipalities were forced to tighten their belts in the face of the severe downturn. State and local construction dipped 2.3%, while federal construction dropped 6.6%. The overall drop in construction pushed total spending on a seasonally adjusted annual rate to $986.2 billion, the slowest pace since June 2004. The big declines in housing and rising mortgage defaults have contributed to the worst financial crisis in seven decades. Even with a $700 billion financial rescue package, the government has not been able to stabilize conditions.
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