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WASHINGTON, D.C. - Construction spending took a bigger-than-expected tumble in July as housing activity dropped to the lowest level in seven years and nonresidential activity fell for the first time in seven months.

The Commerce Department reported Tuesday that construction spending declined 0.6 percent in July, double the 0.3 percent decrease analysts had been expecting.

Housing activity fell for a 16th consecutive month, declining 2.3 percent to a seasonally adjusted annual rate of $357.8 billion. That was the lowest level since March 2001, the start of the last recession.

Nonresidential activity, which had been offsetting some of the weakness in the residential sector also fell in July, dropping 0.7 percent to an annual rate of $416.8 billion. It was the first setback in that category since December.

Analysts are concerned that nonresidential building will weaken in coming months as banks - battered by big losses on mortgage loans - tighten lending standards for nonresidential projects as well.

Overall, construction spending totaled $1.084 trillion at a seasonally adjusted annual rate in July. Last month's 0.6 percent drop represented the largest setback since a 0.9 percent decline in February. The government revised the June performance to show a 0.3 percent increase instead of the 0.4 percent decline that had been originally reported.

Construction activity is 4.7 percent below the level of a year ago, representing one of the major drags on the current economy.

For July, the 0.7 percent drop in nonresidential construction followed gains of 1.7 percent in June and 3.1 percent in May. Last month's weakness reflected declines in the construction of factories, power plants, schools and health care facilities.

Public construction projects rose by 1.4 percent to $309.7 billion in July as spending for federal, state and local building projects rose to all-time highs.

Spending for state and local projects was up 1.2 percent to an annual rate of $285.68 billion, while construction of federal projects rose by 3.9 percent to an annual rate of $24.05 billion.

The 2.3 percent decline in private housing construction was nearly double the 1.4 percent decline in June and showed that builders are still aggressively trying to cut back on their production to help deal with the worst slump in housing demand in decades. The glut of unsold homes is being worsened by soaring mortgage foreclosures dumping even more properties on the market.

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