US Construction Spending Drops 1.3% in June

By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON (AP) — Spending on U.S. construction projects fell in June by the largest amount in seven months, reflecting weakness in home building, nonresidential construction, and the largest drop in government projects in 17 years.

The Commerce Department said Thursday that spending fell 1.3% in June. It followed a 0.5% decline in May and was the biggest drop since a similar 1.3% decline last November.

The weakness in June was widespread. Housing construction decreased 0.5 percent, reflecting continued troubles in homebuilding. Nonresidential construction fell for a third straight month, down 0.3 percent, with declines in such sectors as hospitals, schools, and transportation.

Government spending was down 3.7%, the biggest decline since a 6% drop in March 2002. Spending by state and local governments, the largest category, fell 4.1% while federal outlays rose 2.6%.

The overall economy, as measured by the gross domestic product, slowed to growth at an annual rate of 2.1% in the April-June quarter, down from a 3.1% rate in the first three months of the year.

Analysts believe second-half growth will remain around the 2% level and they are hoping that home construction may rebound with mortgage rates falling further in reaction to the decision by the Federal Reserve on Wednesday to cut its key policy rate for the first time in a decade.

Residential construction fell at a 1.5% rate in the second quarter, its sixth straight quarterly decline.

In a separate report Thursday, the government said the number of jobless workers filing for unemployment benefits rose by 8,000 to a seasonally adjusted 215,000 last week. It was the highest level in four weeks but even with the gain application, which serves as a proxy for layoffs, remained near historic lows.

The government will release the July jobs report on Friday and many economists think it will show the jobless rate returning to near a half-century low of 3.6 percent, after rising slightly to 3.7% in June.