Aug. 7, 2008 (Action Economics delivered by Newstex) -- Action Bullets Construction spending is expected to fall 0.2% in July following the 0.4% decline in June. We expect weakness in residential construction to again overshadow growth in non-residential and public construction. The employment report's aggregate construction hours worked index fell 0.6% in July, leaving the measure falling at a 7.4% y/y rate, consistent with the slower trajectory expected for construction spending.

Moreover, the persistent decline in under-construction figures from the housing starts report is consistent with our projection for further deterioration in residential construction. We expect an 18% rate of decline in the report's tally of Q3 residential construction following the 15.6% decline in Q2, which would keep the rate of contraction well short of the 27% and 25% rates of decline seen in Q4 and Q1 respectively.

Market Action
Treasuries will take their usual cue from the housing data, as traders continue to focus on subprime woes and associated risks in the credit markets. The dollar market appears as sensitive to subprime and credit market concerns as the debt market, and will monitor all of the housing data closely.

The Big Picture
The June U.S. construction spending report revealed a 0.4% June drop with upward back-revisions that left the figures in line with both our estimates and the assumptions underlying the advance . We saw the typical big private residential construction decline of 1.8% that following similar decreases of 1.1% in May (was 1.6%) and 2.1% in April (was 1.7%). A typical gain was seen in nonresidential construction of 0.8%, which followed a 1.1% rise in May (was 0.2%) and 0.6% gain in April (was 1.6%).