Overall U.S. construction spending is expected to drop next year, led by a rapid decline in housing construction.

So says a report released late last month by McGraw-Hill Construction, which forecast the first decline in overall U.S. construction spending since 1991. It said the value of new construction is expected to decline 1 percent to $668 billion in 2007, compared to an anticipated rise of 1 percent for 2006 and a 12 percent hike in 2005.

McGraw-Hill told the Wall Street Journal that the decline in housing construction will have other unhappy side effects on the U.S. economy, such as in job growth and in real estate development.

"Single-family housing has fallen more steeply than what we had anticipated and the correction is taking place faster," said Robert Murray, vice president at McGraw-Hill Construction. The industry "no longer has single-family housing to bolster total construction."

But several other segments in the construction industry - which are in the wheelhouse of the unionized building trades - are expected to have a good 2007. Associated General Contractors Chief Economist Ken Simonson said Nov. 1 that "nonresidential construction spending climbed to its 13th consecutive record in September (up 1.1 percent), showing that the homebuilding slide hasn't carried other segments downhill with it."

He said in the first nine months of 2006 (compared to that period in 2005), overall construction spending was up 6.6 percent, private nonresidential construction moved ahead 17 percent, and public construction rose 10 percent.

"Nearly all of these categories should continue growing over the next year," Simonson said. "I believe the economy is still fundamentally strong, and the housing slide will have limited impacts on other segments." The McGraw-Hill forecast agreed, calling it "reassuring" news that construction of hospitals, schools, hotels and factories is expected to remain strong. Commercial construction is expected to increase 2.5 percent next year.

The Journal said the construction industry accounts for almost a tenth of U.S. economic activity, and its contraction in housing "could have a ripple effect through the economy as it is a major buyer of finished products and generator of jobs." Retail construction, which is related to housing, is also expected to drop in 2007.

However, inflationary pressures on construction materials may moderate due to slackening demand.