Lowe's Companies, Inc. (NYSE: LOW) shares moved sharply lower after the home improvement retailer announced lower profits on a dip in sales. The company said its first quarter profits fell 18% and it forecasts more declines amid a continued slump that has significantly slowed consumer spending.

The Home Depot (NYSE: HD) also fell sharply on the news as they also announced that they expect a fall in profits as the housing slump continues. However, improvements in international operations for the company, particularly in Mexico, may help absorb some of the impact.

The earnings numbers are bad news for the home building industry that many were hoping would begin to show signs of a recovery. Sales of previously-owned homes, which is about 85% of the housing market, dropped in march for the seventh time in eight months. These are homes that typically trigger home-improvement spending.

The housing market itself continues to suffer from the effects of foreclosures. Tighter consumer spending and lower valuations have led to a spike in foreclosures. Unfortunately, these foreclosures end up lowering the value of surrounding properties in a vicious cycle.

Government aid has been relatively ineffective to date as it tries to bailout homeowners by encouraging lenders to renegotiate mortgages. Many of these homeowners are paying mortgages that are far higher than the value of their home warrants. As a result, they are not necessarily adverse to having their home go into foreclosure.

In the end, it could be awhile before the housing crisis is sorted out and home building companies like Home Depot and Lowe's can return to sustained growth. Investors should keep a close eye on economic numbers for any hints of a turnaround...

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