July 1 (Bloomberg) -- Spending on U.S. construction projects fell in May for the fourth time in five months, a sign that a rebound from the housing recession will be slow to develop.

The 0.9 percent decrease was more than forecast and followed a revised 0.6 percent gain the prior month, according to data from the Commerce Department today in Washington. Total residential construction fell 3.5 percent.

Residential real-estate remains in a slump as foreclosures add to the glut of homes on the market and discourage builders, while commercial developers are reluctant to take on new projects until demand picks up. Still, other recent reports indicate the worst of the declines in homebuilding may be over and there are signs the economy is stabilizing.

For residential construction, ``any substantial recovery is still far in the future,'' Steven Wood, president of Insight Economics LLC in Danville, California, said before the report. ``Non-residential construction continued to be pressured lower by rising vacancy rates and declining rents. State and local government budgets are severely pressured.''

Total construction spending was forecast to drop 0.6 percent after an originally reported 0.8 percent increase the prior month, according to the median estimate of 53 economists in a Bloomberg News survey. Estimates ranged from a decline of 1.9 percent to a gain of 0.5 percent.

Private residential construction spending fell 3.4 percent after no change the prior month.

Job Losses

Government steps to help homeowners are failing to keep pace with job losses that push more borrowers toward foreclosure. Delinquency rates on the least risky mortgages more than doubled in the first quarter from a year earlier, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said yesterday.

Companies in the U.S. cut more jobs than forecast in June, according to a private report today, showing the labor market will be slow to improve even as other parts of the economy indicate the recession is abating. The 473,000 drop in the ADP Employer Services gauge followed a revised reduction of 485,000 workers in May that was smaller than previously estimated.

Job losses may mount as the bankruptcies of General Motors Corp. and Chrysler LLC ripple through manufacturing, and increased firings threaten to further restrain consumer spending.

KB Home, the Los Angeles-based homebuilder that targets first- time buyers, reported a 40 percent drop in sales in the quarter ended May 31 and a wider loss than analysts expected. The company is slashing prices and reducing the size of its houses to compete with foreclosed properties for sale.

`Recessionary' Conditions

``Prevailing recessionary economic conditions weighed heavily on the homebuilding industry,'' Chief Executive Officer Jeffrey Mezger said in a statement last week. Still, ``some negative market trends may be moderating at both local and national levels.''

Today's construction report showed non-residential construction, including public projects, rose 0.1 percent and was down 0.4 percent from a year earlier.

Public construction decreased 0.6 percent, the first drop since January, restrained by power plants, office space and highways. Private non-residential construction rose 0.5 percent.

The Obama administration's effort to revive growth through investments in roads, schools and the U.S. energy network is expected to spur construction projects in coming months.

In signs that the housing downturn, now in its fourth year, may be approaching an end, builders broke ground on more homes than forecast in May and permits, an indicator of future construction, also rose more than estimated.

Real-estate values in 20 major cities decreased 18.1 percent in April from a year earlier, the smallest decline in six months, according to the S&P/Case-Shiller index released yesterday.

Construction spending figures are based on expenditures over the life of a project, with about 75 percent of value accounted for in the first four months.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

Last Updated: July 1, 2009 10:00 EDT