Construction Spending Dropped in July, Commerce Reports

Construction spending fell six-tenths of a point in July, according to the Commerce Department. The drop was twice as much as analysts had forecast. Meanwhile, housing activity fell to its lowest level since March 2001, and nonresidential activity also declined. Some analysts expect nonresidential construction to weaken as banks tighten lending standards.

Housing activity fell for a 16th consecutive month, declining 2.3% to a seasonally adjusted annual rate of $357.8 billion, the lowest level since March 2001.

Nonresidential activity, which had been offsetting some of the weakness in the residential sector also fell in July, dropping seven-tenths to an annual rate of $416.8 billion. It was the first setback in that category since December.

Analysts are concerned that nonresidential building will weaken in coming months as banks tighten lending standards for nonresidential projects as well.Overall, construction spending totaled $1.084 trillion at a seasonally adjusted annual rate in July. Last month's drop represented the largest setback since a nine-tenths decline in February.

The government revised the June performance to show a 0.3% increase instead of the 0.4% decline that had been originally reported.

Construction activity is 4.7% below the level of a year ago, representing one of the major drags on the current economy.

For July, the seven-tenths drop in nonresidential construction followed gains of 1.7% in June and 3.1% in May. Last month's weakness reflected declines in the construction of factories, power plants, schools and health care facilities.

Public construction projects rose by 1.4% to $309.7 billion in July as spending for federal, state and local building projects rose to all-time highs.

Spending for state and local projects was up 1.2% to an annual rate of $285.68 billion, while construction of federal projects rose by 3.9% to an annual rate of $24.05 billion.

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