ANALYSIS-Weak U.S. job picture could hit nonresidential building

By Scott Malone and Chelsea Emery

BOSTON/NEW YORK, March 7 (Reuters) - The unexpected drop in U.S. payroll figures could prompt corporate America to cut back on nonresidential construction projects, kicking out another leg of the stool that has propped up industrial conglomerates.

Cutbacks by manufacturers, retailers and builders indicated by Friday's U.S. Labor Department payroll report mean they simply will not need more office space, while concerns about the slowing U.S. economy will likely prompt companies to delay nonessential new stores or warehouses.

That means that nonresidential construction, a key U.S. market for companies including United Technologies Corp (UTX.N: Quote, Profile, Research), Honeywell International Inc (HON.N: Quote, Profile, Research) and Cooper Industries Ltd (CBE.N: Quote, Profile, Research) that has held up through the housing slump, could be the next sector sucked into a downturn.

"I expect the trend to be down and into negative territory for most of 2008," said Kermit Baker, chief economist at the American Institute of Architects. That group's January Architectural Billings Index, an indicator of nonresidential construction activity -- dropped 4.3 points to 50.7, just above the 50 level that divides growth from contraction.

"I would not be surprised at all if we saw the February number dip into below-50 territory," Baker said. "Since there has been very little stomach for speculative activity ... when the need is not arising any more, I think demand will scale back pretty quickly."

Data released by the U.S. Labor Department showed U.S. employers cut payrolls by 63,000 in February, marking the second consecutive month of decline. [ID:N07310787]

BIGGER FACTOR THAN HOUSING

Nonresidential building is a much a bigger market than housing for many of the largest conglomerates, and a downturn would eat into demand for their heating, cooling, lighting and security systems.