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Last Updated: Friday, 30 November 2007, 15:45 GMT
Fall in home building in the US
US construction worker
The US housing downturn appears to be hitting hard
US construction spending fell sharply in October, led by a large fall in private home building as the US housing downturn appeared to be intensifying.

Overall construction expenditure declined 0.8% in October compared with September, a bigger contraction than most analysts had expected.

Private home building fell 2% to $503.7bn (244bn), a two-year low.

Further Commerce Department data showed that consumer spending was also weaker than expected in October, down 0.2%.

Sub-prime woes

October's fall in overall construction spending was much worse than the 0.2% dip predicted by analysts.

US shoppers
A successful festive shopping season could prove vital

The drop in private home construction was the 20th straight monthly decline for the troubled sector.

This sharp downturn in the US housing market has been sparked by higher mortgage rates over the past year.

Centred on the sub-prime mortgage sector, it has led to record loan defaults and house repossessions.

The knock-on effect has been multi-billion dollar bad mortgage debt loses for many of America's banks.

These banks are now much less willing to lend to prospective homeowners, who are in turn less keen to join the housing market.

The downturn is showing increasing signs of spreading to the wider US economy, hence October's decline in consumer spending.

A majority of analysts now expect the Federal Reserve to cut interest rates next month.

Federal Reserve Chairman Ben Bernanke himself signalled in a speech on Thursday night that the central bank is prepared to cut interest rates further if needed.

The Fed last lowered rates on 1 November, reducing them to 4.5% from 4.75%.

That followed a bigger cut from 5.25% to 4.75% in October, which was the Fed's first reduction in rates for four years.

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