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Construction Spending Mar Feb ! Consensus: !

Overall Spending +0.1% -1.4%r ! +0.5% !

Residential +0.7% -2.2%r ! Actual: !

! +0.1% !

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By Eric Morath and Tom Barkley

Of Dow Jones NEWSWIRES

WASHINGTON -(Dow Jones)- Spending on construction projects stayed nearly flat in March after a weak start to the year, further evidence that the industry is a drag on the economic recovery.

Construction spending increased by 0.1% in March to a seasonally adjusted annual rate of $808.07 billion, the Commerce Department said Tuesday. Spending in February was revised down to a 1.4% loss from an originally reported 1.1% decline.

Economists surveyed by Dow Jones Newswires had forecast a 0.5% gain for March.

A decline in local government spending nearly offset gains in the private sector and federal construction.

Total private-sector spending on construction increased 0.7% in March to $531.91 billion. But public construction fell by 1.1%, to its lowest level in over five years.

Government spending on highways, education and health care all declined during the month.

State and local governments decreased building outlays by 1.6% to $247.31 billion. That's the lowest since November 2006.

Municipalities are under pressure to reduce spending as tax receipts remain depressed and aid from Washington has slowed.

Federal government spending rose 3.8% to $28.85 billion in March.

Meanwhile, private nonresidential construction--including office, commercial and infrastructure building--grew by 0.7% to $287.80 billion in March after posting a decline in February.

Slowing spending on nonresidential structures was a key factor holding back overall economic growth during the first three months of the year, the government said last week in its initial measure of gross domestic product.

That report, however, showed that home building strengthened during the quarter.

Tuesday's release showed spending on residential construction increased by 0.7% to $251.21 billion in March. Private residential spending grew at the same rate.

A large stock pile of cheap, foreclosed homes has made for new properties, which tend to be more expensive, less attractive. But recent reports indicate prices may be reaching their bottom, suggesting that overall demand may be starting to grow.

The Commerce Department report on construction spending can be found at http://www.census.gov/const/C30/release.pdf

-By Eric Morath and Tom Barkley, Dow Jones Newswires; 202-862-9279; eric.morath@dowjones.com