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Economy Slump Slows Construction

Commercial construction has slowed as a result of the shaky economy, analysts say. The annual rate of spending on nonresidential construction ó office buildings, plants, warehouses and stores ó dropped 9.4 percent between the end of the first quarter and the second quarter of the year, according to government data.

Trouble with dotcom and telecommunications businesses has impacted office construction the most. Building in that sector fell 15.2 percent between March and the end of June. Industrial and retail building also decreased.

The divergence between the residential and non-residential sectors mirrors a trend in the overall economy: U.S. consumers have continued to spend even while businesses tighten their belts, analysts have said.

Residential construction, however, remains strong due to falling interest rates, despite the unsteady U.S. economy. "The housing market is still a positive contributor, but commercial construction was a big negative in the second quarter and is likely to be a bigger negative going forward," said Mark Vitner, an economist with First Union Bank Corp., Charlotte, N.C.

Nonresidential construction made an overall contribution of 0.4 percentage points to gross domestic product growth of 1.3 percent in the first quarter of 2001. However, it subtracted 0.4 percent from the 0.7 GDP growth figure in the three months between April and June, said David Seiders, chief economist for the National Association of Home Builders.

"The big weak components in the economy have been business inventory investment, capital equipment spending," Seiders said. "Now business spending on structures joins the party on the down side."

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