Construction spending declined in May as residential building fell after a popular homebuyers' tax credit expired.
The report comes after government data released last month showed sales of new and previously-owned homes fell sharply in May. The federal government's tax credit for homebuyers expired April 30.
The renewed slump in housing indicates that the sector's recovery earlier this year was almost totally dependent on government incentives.
The Commerce Department said Thursday that construction spending dropped by 0.2 percent, after rising by a downwardly revised 2.3 percent in April. Analysts expected a steeper drop.
The decline was driven by a 0.4 percent decrease in construction spending on new homes and apartments. That followed a 5 percent jump in April. The department previously reported that new home construction fell by 17 percent in May, and new home sales plummeted 33 percent to a record low annual rate of 300,000.
Also on Thursday, the National Association of Realtors said the number of buyers who signed contracts to purchase homes dropped in May to the lowest level on records dating from 2001.
The Realtors' group said its seasonally adjusted index of sales agreements for previously occupied homes tumbled 30 percent. The index fell to 77.6 in May from 110.9 in April.
Commercial building projects also declined, the Commerce Department report said. Spending on office buildings, shopping malls, and other projects fell by 0.6 percent, its steepest drop since February. That followed an increase in April, the first rise in commercial building since March 2009.
The sector has suffered in the weak economy due to rising loan defaults and tighter credit. That has made it harder for developers to get financing.
Government spending on highway and other infrastructure projects rose by 0.4 percent, the third straight month of gains. But some economists worry that those increases could decline in coming months as state and local governments cut spending in an effort to close budget gaps.
State and local construction spending rose in May by 0.6 percent, to $275 billion, while federal spending dropped by 1.3 percent to $30.5 billion.
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