WASHINGTON (Reuters) -U.S. construction spending dropped further in June amid a sharp decline in outlays on single-family housing projects because of higher mortgage rates and rising inventory.

The Commerce Department's Census Bureau said on Friday that construction spending fell 0.4% after a revised 0.4% decrease in May. Economists polled by Reuters had forecast construction spending unchanged after a previously reported 0.3% drop in May. Spending fell 2.9% on a year-over-year basis in June.

Spending on private construction projects slipped 0.5%. Investment in residential construction decreased 0.7%, with outlays on new single-family housing projects plunging 1.8%.

Government data this week showed residential investment contracted in the second quarter at its fastest pace since the fourth quarter of 2022.

Mortgage rates have remained elevated as tariffs on imported goods have raised economic uncertainty, prompting the Federal Reserve to pause its interest rate-cutting cycle. New housing inventory is at levels last seen in late 2007.

Outlays on multi-family housing units were unchanged in June. Investment in private non-residential structures like offices and factories fell 0.3%. 

Spending on nonresidential structures contracted in the April-June quarter for the second straight quarter.

Spending on public construction projects edged up 0.1%. State and local government construction spending increased 0.5%, while outlays on federal government projects dropped 4.4%.