WASHINGTON — U.S. construction spending fell in July from June by the largest amount in a year, weighed down by a big drop in home improvement projects.
But spending on construction of single-family homes and apartments increased again, a hopeful sign for the modest housing recovery.
Also, U.S. factory activity shrank for the third straight month in August as new orders, production and employment all fell. The report adds to other signs that manufacturing is struggling around the globe.
The Commerce Department said Tuesday that overall construction spending declined 0.9 percent in July. It followed three months of gains, which were driven by increases in home and apartment construction.
The June decline left spending at a seasonally adjusted annual rate of $834.4 billion. That's nearly 12 percent above a 12-year low hit in February 2011. Construction activity is roughly half of what economists consider to be healthy.
Spending on residential construction fell 1.6 percent in July from June to a seasonally adjusted annual level of $264.6 billion. But that was dragged lower by a 5.5 percent decline in home improvement projects.
Spending on single-family homes rose 1.5 percent, the fourth straight monthly gain.
Separately, CoreLogic, a private real estate data provide, said U.S. home prices jumped 3.8 percent in the 12 months ending in July.
The year-over-year increase was the biggest in six years and the third national measure of home prices to show steady gains.
Rising prices and higher home sales have made builders more confident in the housing market. The gains in housing have been fueled in part by record low levels for mortgage rates.
Still, the construction industry remains weak.
Spending on nonresidential projects fell 0.9 percent to an annual level of $294.1 billion. Spending on government projects dropped 0.4 percent to a level of $275.7 billion. Spending on state and local building projects fell 0.3 percent, while spending on federal construction projects was down 1.3 percent.
Despite the modest gains in housing, the broader economy weakened in the spring. Economic growth slowed to an annual rate of just 1.7 percent in the April-June quarter, down from a 2 percent rate in the first three months of the year.
The Institute for Supply Management, a trade group of purchasing managers, said Tuesday its index of manufacturing activity ticked down to 49.6.
That's down from 49.8 in July and the lowest reading in three years.
A reading below 50 indicates contraction.
Weak consumer spending and steady declines in business orders for large machinery and other capital goods are slowing factory output.
The report followed other data showing manufacturing has slowed overseas. A measure of factory activity in China fell to its lowest level in more than three years last month.
And manufacturing in Europe has also stagnated in the face of the region's financial crisis.
Paul Dales, senior U.S. economist at Capital Economics, said continued uncertainty caused by the recession in Europe, the slowdown in Asia and impending tax increases and spending cuts in the United States “is taking its toll on activity.”
Chairman Ben Bernanke last Friday said the Federal Reserve will do more to help the still-struggling U.S. economy.
Some economists predict the Fed will unveil some bold new step as soon as its Sept. 12-13 meeting, possibly a third round of bond purchases meant to lower long-term interest rates and encourage more borrowing and spending.
The government will report on August hiring and unemployment on Friday.
