Construction spending lowest in 7 years

WASHINGTON (AP -- Construction spending took a bigger-than-expected tumble in July as housing activity dropped to the lowest level in seven years - and nonresidential activity fell for the first time in seven months.

The Commerce Department reported Tuesday that construction spending declined 0.6% in July, double the 0.3% decrease analysts had been expecting.

Lowest since last recession

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

Nonresidential activity, which had been offsetting some of the weakness in the residential sector also fell in July, dropping 0.7% 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 -- battered by big losses on mortgage loans -- 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 0.6% drop represented the largest setback since a 0.9% decline in February.

Drag on the economy

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 0.7% 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

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.

The 2.3% decline in private housing construction was nearly double the 1.4% decline in June and showed that builders are still aggressively trying to cut back on their production to help deal with the worst slump in housing demand in decades.

The glut of unsold homes is being worsened by soaring mortgage foreclosures dumping even more properties on the market.