WASHINGTON (Reuters) - Construction spending unexpectedly fell in June, a possible sign that government budget cuts and a sharp rise in interest rates were weighing on the economy.
Construction spending dropped 0.6 percent to an annual rate of $884 billion, the Commerce Department said on Thursday.
It was the biggest decline since January, although the government revised upwards its estimate for construction spending in May.
A 1.1 percent drop in public sector outlays factored heavily in the decline.
The federal government enacted steep budget cuts in March, which are expected to squeeze state and local administrations that depend on funds from Washington. Federal construction fell 1.5 percent during the month, while outlays on state and local projects declined 1.1 percent.
The private sector also pulled back in June. Construction spending on homes was flat, while non-residential spending dropped 0.9 percent.
Long term interest rates began rising in May and spiked in June on expectations that the Federal Reserve would begin scaling back a bond-buying program later this year. The Fed on Wednesday noted that mortgage rates had risen in the United States.
Economists polled by Reuters had expected overall construction spending to rise 0.4 percent in June.
Reporting by Jason Lange