WASHINGTON (Reuters) -U.S. construction spending fell in May as higher mortgage rates and rising inventory weighed on single-family housing projects. 

The Commerce Department's Census Bureau said on Tuesday that construction spending dropped 0.3% after an upwardly revised 0.2% decline in April. 

Economists polled by Reuters had forecast construction spending would fall 0.2% after a previously reported 0.4% decrease in April. Spending fell 3.5% on a year-over-year basis in May. 

Spending on private construction projects slipped 0.5%. Investment in residential construction also dropped 0.5%, with outlays on new single-family housing projects tumbling 1.8%.

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.

A National Association of Home Builders survey last month showed sentiment among single-family homebuilders plummeted to a 2-1/2-year low in June. It forecast a decline in single-family starts this year.

Outlays on multi-family housing units were unchanged in May. Investment in private non-residential structures like offices and factories dropped 0.4%. 

Spending on public construction projects rose 0.1%. State and local government construction spending was unchanged, while outlays on federal government projects shot up 1.0%.