The Commerce Department said that spending on construction projects dropped by 0.3 percent to a seasonally adjusted annual rate of $1.196 trillion in September. It was the biggest decline since a 0.7 percent fall in July and the fifth month in which overall construction activity has either declined or been flat.
Housing was down 1.1 percent in September, reflecting the steep slump in this once booming sector as builders have slashed construction plans in the face of slumping sales demand.
A new study by Moody's Economy.com forecasts overall house prices will fall 3 ½ percent next year, reports CBS News correspondent Anthony Mason.
"That's unprecedented," says Mark Zandi of Moody's Economy.com. "You'd have to go all the way back to the great depression to find a year in which house prices declined."
In 20 of the country's metro areas, the study says, house prices will crash, with double digit drops in cities like Sarasota (14 percent), Las Vegas (12.9 percent) Washington (12 percent) and Detroit (11.7 percent), reports Mason.
In a another report, the Institute of Supply Management said its closely watched gauge of manufacturing activity edged down to 51.2 in October, compared to a September reading of 52.9. The October performance was below the 53.0 that analysts had been expecting.
The government reported last week that the overall economy slowed to a lackluster growth rate of just 1.6 percent in July-September quarter, the slowest pace in more than three years, as housing construction plunged at a rate of 17.4 percent, the steepest drop in four quarters of declines.
Some economists have worried that the sharp drop in housing could rattle consumer confidence and push the country into a recession. However, those fears have lessened somewhat in recent weeks as gasoline prices, which had surged above $3 per gallon, have retreated, leaving consumers with more money to spend on other items.
For September, the 1.1 percent drop in private residential construction was the sixth consecutive decline of 1 percent or more. It pushed total spending in this area down to $312.7 billion at a seasonally adjusted annual rate.
The weakness in housing was partially offset by a small 0.1 percent rise in spending on nonresidential private building projects, which rose to an all-time high of $312.7 billion at a seasonally adjusted annual rate.
This gain, which was the smallest percentage increase since February 2006, reflected increases in hotels, office buildings and the category that includes shopping centers.
Spending on government building projects rose by a strong 0.9 percent to a record of $273.2 billion. This increase reflected a 1.1 percent jump in spending for state and local projects, which offset a 1.5 percent drop in spending on federal building projects.