Construction spending dropped a seasonally adjusted 0.8 per cent after a 1.2 per cent increase in July, the Commerce Department reported Wednesday. The July increase followed a 1.6 per cent June decline.
The weakness was apparent in all sectors. Housing construction declined 0.1 per cent, reflecting a big drop in spending on remodeling. Non-residential construction fell 1.4 per cent while spending on government projects dropped 0.9 per cent.
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 totalled $960.96 billion at a seasonally adjusted annual rate in August, 5 per cent higher than a year ago.
Spending on housing totalled $351.7 billion at an annual rate in August, 3.7 per cent higher than a year ago. The August decline reflected a 14 per cent drop in home remodeling work. Spending to construct new single-family homes rose 0.7 per cent and apartment construction was up 1.4 per cent.
Spending on non-residential projects totalled $333.3 billion, 9.2 per cent higher than a year ago. In August, spending on office buildings, shopping centres and hospital construction all declined.
Government building projects totalled $253.4 billion, just 1.9 per cent 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 per cent while federal projects dropped 1.9 per cent.
The overall economy went into reverse in the first three months of the year, shrinking at an annual rate of 2.1 per cent, in part because of weakness in construction. Housing construction was contracting at a 5.3 per cent 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 per cent, 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 per cent 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 per cent in the gross domestic product for the third quarter but the recent weakness in construction spending could cause revisions in those estimates.