Mon Aug 2, 2004

WASHINGTON (Reuters) - Outlays for U.S. construction fell unexpectedly in June as spending on housing dropped for the first time in 16 months, a government report showed on Monday.

The Commerce Department said June outlays for construction decreased 0.3 percent to a seasonally adjusted $985.16 billion annual rate. Wall Street analysts had expected June spending to be unchanged.

May construction spending was also revised lower to a 0.1 percent gain, from a previously reported 0.3 percent advance.

The report suggested a possible cooling of the U.S. housing market after a spike in residential construction over the past year. However, analysts said the data are often irregular and may not reveal underlying trends.

"I don't think it's that reliable of an indicator. It's a pretty volatile series," said William Cheney, chief economist at John Hancock Financial Services in Boston.

The Federal Reserve has begun raising borrowing costs to head off possible inflation. Fed Chairman Alan Greenspan has said signs of slowdown in June were temporary, and the economy is expected to have picked up steam in July.

Residential construction spending fell 0.6 percent in June, the first decrease since February 2003. June's decline was the largest monthly drop in residential outlays since a 3.7 percent drop in January 2002.

Private non-residential construction was unchanged in June, after a 1.0 percent drop in May. Public spending rose 0.2 percent and state and local government construction spending hit an all-time high in June.

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