U.S. construction spending slumps 0.8 percent

U.S. construction spending fell in August, the second decline in the past three months, with housing, non-residential and government projects all showing weakness.

Construction spending dropped a seasonally adjusted 0.8 percent after a 1.2-percent increase in July, the Commerce Department reported Wednesday. The July increase followed a 1.6-percent June decline.

The weakness was apparent in all sectors. Housing construction declined 0.1 percent, reflecting a big drop in spending on remodeling. Non-residential construction fell 1.4 percent while spending on government projects dropped 0.9 percent.

In addition to the August decline, the government revised lower its estimates for activity in the previous two months. This could call into question expectations that building activity will support economic growth in the second half of the year.

Overall construction spending totaled $960.96 billion at a seasonally adjusted annual rate in August, 5 percent higher than a year ago.

Spending on housing totaled $351.7 billion at an annual rate in August, 3.7 percent higher than a year ago. The August decline versus July reflected a 14-percent drop in home remodeling work. Spending to construct new single-family homes rose 0.7 percent and apartment construction was up 1.4 percent.

Spending on non-residential projects totaled $333.3 billion, 9.2 percent higher than a year ago. In August, spending on office buildings, shopping centers and hospital construction all declined from July.

Government building projects totaled $253.4 billion, just 1.9 percent higher than a year ago. Construction activity at all levels of government has been held back by tight budgets. For August, state and local construction spending was down 0.9 percent versus July while federal projects dropped 1.9 percent.

The overall economy went into reverse in the first three months of the year, shrinking at an annual rate of 2.1 percent, in part because of weakness in construction. Housing construction was contracting at a 5.3-percent rate in the first quarter, one of a number of sectors that were hurt by the unusually severe winter.

The economy rebounded in the April-June quarter, growing at an annual rate of 4.6 percent, the best showing in more than two years. Part of the rebound reflected a recovery in residential construction, which grew at an annual rate of 8.8 percent in the spring, the first positive growth after two quarters of declines.

Economists are hoping that construction will continue to grow in the July-September quarter and that will provide support for the overall economy. Economists are forecasting growth of around 3 percent in the gross domestic product for the third quarter but the recent weakness in construction spending could cause revisions in those estimates.