Construction Spending in U.S. Fell Twice as Much as Forecast

Construction spending in July fell twice as much as forecast, led by a slump in homebuilding that will depress U.S. economic growth.

The 1 percent drop brought spending to $805.2 billion, the lowest level in a decade, after a revised 0.8 percent drop in June that wiped out a previously estimated gain, Commerce Department figures showed today in Washington. Spending on federal government projects fell by the most in a year.

Builders are facing a slump in demand following the end of a homebuyer tax credit, even with mortgage rates at a record low, while mounting foreclosures will add to the inventory and further restrain prices. Government construction spending is also likely to stay weak as stimulus-linked outlays wane and state budgets shrink.

“Housing is fairly weak and construction related to the stimulus is fading,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “Some commercial projects may have been delayed as businesses are uncertain about the outlook.”

Construction spending was down 11 percent in the year ended in July.

Residential Slump

Private construction spending decreased 0.8 percent as homebuilding outlays dropped 2.6 percent. Private non-residential projects increased 0.8 percent, led by power and communications facilities.

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