U.S. construction spending fell slightly in July as weakness in non-residential building and government projects offset the best performance in home building in 10 months, the government reported Tuesday. The Commerce Department said construction spending fell 0.2 percent in July, worse than the flat reading expected by economists. July's decline followed a 0.1 percent rise in June. July's decline occurred even though construction of homes and apartments rose by 2.3 percent—the best performance since last September and further evidence that the long U.S. housing slump may finally be ending. Despite the rise in home building, residential construction is still 27.8 percent below a year ago. However, construction problems are not confined to housing. Developers of commercial projects are facing difficulties as banks tighten lending standards amid rising loan defaults in the commercial real-estate sector. In July, non-residential construction fell by 1.2 percent, the third consecutive decline. The month's weakness was led by a big drop in spending on hotels and motels, with office shopping center construction also declining. Spending on government construction projects fell by 0.7 percent, the first such decline sine January. The drop surprised economists who expected government infrastructure spending to keep rising because of the $787 billion stimulus package approved by Congress in February. Federal government construction activity rose 0.8 percent in July, but state and local spending fell by 0.8 percent, reflecting severe budget strains on many local and state governments due to the recession.
