Construction Sector's Woes Were Worse Than Expected in July

The nation's construction industry remained mired in recession mode in July as spending in the sector fell a worse-than-expected 1%, the Commerce Department announced Wednesday. Equally significant, the report revised June's construction spending estimate downward to an 0.8% decline from the previously estimated 0.1% increase.

The consensus of economists surveyed by Bloomberg had been for July construction spending to fall 0.6%. Construction spending fell 2.8% in May. On a year-over-year basis, construction spending totaled a seasonally-adjusted annual rate of $805.2 billion, or down 10.7% from a year ago, in July 2009.

For the month, public construction spending, which includes fiscal stimulus infrastructure projects, fell 1.2% to a seasonally adjusted annual rate of $298.8 billion. In that category, highway construction plummeted 2.9% and education construction dipped 0.1%.

The news was almost as bad concerning private construction, which declined 0.8% in July to a seasonally-adjusted annual rate of $506.4 billion. Private residential construction, which includes single-family homes, plummeted 2.6% to an annual rate of $240.3 billion. But private nonresidential construction, which includes shopping malls and office buildings, rose 0.8% to an annual rate of $266.1 billion.

The Commerce Department's construction spending report provides the most comprehensive survey of both public and private sector building activity.

Difficult Days For Construction Continue

July's construction report is a three-part downer. First, the top-line statistic was a larger decline than expected. Second, public construction activity, whose fiscal stimulus-based projects have heretofore helped support the beleaguered sector, also declined. Finally, the June construction stat was revised down, to an 0.8% decline.

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Given the parallel downtrends in new and existing home sales, the private construction decrease was expected. The public construction decline was not, however, and if that trend continues, it will mean that construction's contraction will subtract even more from U.S. GDP in 2010 than economists originally forecast.

If that scenario ensues, it would put even more pressure on other sputtering economic drivers -- business investment, consumer spending, manufacturing and exports -- to propel the U.S. recovery.