Ahead of the Bell: Construction Spending

Construction spending likely declined in July, reflecting renewed problems in housing since the expiration of government tax credits.

Economists surveyed by Thomson Reuters are forecasting that construction spending dipped 0.5 percent in July. The Commerce Department will release the new report at 10 a.m. EDT Wednesday.

A drop in activity for July would be the latest in a string of indicators showing that the overall economy slowed in the spring. That weakness has raised concerns about the possibility of a double-dip recession.

In June, construction spending rose a slight 0.1 percent. But all the strength came from government building activity. Private sector spending on home construction and commercial projects such as office buildings and shopping centers declined in June.

Housing construction fell 0.8 percent in June after an even larger 1.5 percent decline in May. Those setbacks reflected the expiration of the government's popular homebuyers tax credit which expired on April 30. Since that time, housing construction and sales have both taken sharp declines.

Reports last week showed that sales of previously occupied homes fell 27 percent in July, the weakest showing in 15 years, while sales of new homes fell 12.4 percent to a seasonally adjusted annual pace of 276,000 units, the slowest sales pace in at least 47 years.

Spending on nonresidential building projects fell for a 15th consecutive month in June. This sector has been hard hit by the economic downturn which has triggered rising defaults on commercial real estate projects. That has prompted banks to tighten lending standards and made it harder for builders to get financing for new projects.

In June, the only strength in construction came in the government sector. Overall public construction rose 1.5 percent, reflecting a 1.1 percent increase in state and local spending and a 4.6 percent rise by the federal government.