Construction spending suffers worst drop in 3 years

U.S. construction spending fell in June by the largest amount in more than three years as housing, non-residential construction and government spending all weakened.

Construction spending dropped 1.8 percent in June on a seasonally adjusted basis after rising by a revised 0.8 percent in May, the Commerce Department reported Friday. It was the biggest setback since a 2.8-percent fall in January 2011.

The weakness was widespread with spending on housing down for a second straight month, falling 0.3 percent, while non-residential building activity fell 1.6 percent, the biggest decrease since January. Spending on government projects dropped 4 percent, the biggest decline in more than a decade.

The June performance represented a setback to hopes stronger construction activity will help support overall economic growth.

The decline in housing reflected a 1.4-percent fall in spending on single-family construction which offset a 2.5-percent rise in the smaller apartment sector. Even with the two months of declines, housing construction is still 7.4 percent above the level of a year ago.

The drop in non-residential activity reflected weakness in hotel construction and the category that includes shopping malls. Non-residential building is 11.2 percent higher than a year ago.

The 4-percent fall in government projects was the biggest one-month setback since government building tumbled by 6 percent in March 2002. The June weakness reflected a 5.2-percent decline in state and local government projects which offset a 10.4-percent rise in spending on federal building projects.

Government building activity has been constrained in recent years by the fall in tax revenue as a result of the Great Recession and efforts at the federal level to get soaring budget deficits under control.

A slump in construction in the winter contributed to the economy shrinking at an annual rate of 2.1 percent in the January-March quarter, the biggest decline since the first quarter of 2009 during the depths of the Great Recession.

Economists say a rebound to a 4-percent growth rate in the second quarter will be followed by solid growth of around 3 percent in the overall economy in the second half of this year.