LOS ANGELES - Robert Lindsey was not surprised by new data last week that showed new home sales have fallen more than 40 percent from their peak almost three years ago. He can tell from his company's bank account.

"We're literally losing money every month," said Lindsey, general manager of Signature Drywall in Sacramento, Calif., which installs drywall in new homes and apartments in the Sacramento and San Francisco areas.

In 2005, the company raked in some $30 million in sales. Last year, sales were less than half that, and this year Lindsey hopes he can make $8 million.

"It's kind of like bleeding to death," he said.

A lot of his competitors feel that way. On Monday, the Commerce Department said residential construction spending fell in April for the 26th month in a row.

The housing industry is not monolithic. Yes, there are major players, but for every mega-developer there are hundreds if not thousands of smaller companies engaged in building houses. And when those companies are hurting, the pain - in the form of job losses and weak sales - spreads across an economy teetering on the edge of recession. California, Florida, Arizona and Nevada, which are all heavily dependent on the housing sector, are among the 11 states that have already fallen into recession, according to Moody's Economy.com.

"The collateral damage from a lost construction job is greater than in many other industries," said Mark Zandi, chief economist at Economy .com. "For every job lost in construction you generally lose a little over one more job elsewhere in the economy."

Like falling dominoes, when construction stops, the surrounding restaurants, grocery stories and other businesses get hit.

Guillermo Hermosillo's car dealership in Calexico, Calif., sold as many as 30 vehicles a month during the real estate boom. Many of them were pickups bought by construction workers flush with cash from helping to erect new homes across the city east of San Diego along the U.S.-Mexico border.

"Then the housing market crashed and everybody's losing their homes. These guys are left without jobs. You don't see them anymore," said Hermosillo, whose sales are half of what they were last year.

One measure of how much the home building industry has contracted since the high-flying days of the housing run-up: construction permits for new homes peaked at about 2.3 million in September 2005 - about 1 million more new units than were reported in April.

Everything that goes into building a home - from plumbing fixtures, to steel, lumber and masonry, to the transportation needed to move construction materials and the accounting and other financial services involved in selling the home - is tied to an industry that can suffer job losses when housing construction slows.

Among the hardest hit are residential trade subcontractors.

They have seen business plummet as home builders scaled back construction. Many subcontractors have slashed payrolls. Some are trying to transition into commercial construction, only to be rebuffed or forced to lower bids dramatically to gain entry, further squeezing the market.

In Miami, where there is more than a 3 1/2 -year supply of existing homes on the market, general contractor O'Steen & Co., also has sliced its payroll.

The company, which handles framing, concrete installation and virtually all other aspects of residential and commercial construction, employs about 40 people, but like similar firms, its number of hires can vary depending on how many projects the company has going.

"Under normal circumstances it should be 200," said owner L. Raymond O'Steen. "From a year ago, I would say the volume of business is probably off 60 percent."