U.S. construction spending down 0.8 percent in August

WASHINGTON -- U.S. construction spending fell in August, the second decline in the past three months, with housing, nonresidential 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. Nonresidential 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. While this could call into question expectations that building activity will support economic growth in the second half of the year, economists at Barclays said they were leaving their forecast for third-quarter growth unchanged at 3 percent.

Barclays economist Michael Grapen said while the report signaled a softer start to the third quarter, he was still encouraged with gains shown in single-family and apartment construction.

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 big drop in home remodeling work which offset small gains in single-family construction and apartment construction.

Spending on nonresidential 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 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.