The Commerce Department said overall outlays for construction fell 2.2 percent in June to a seasonally adjusted rate of $820.8 billion. That followed a revised 2.0 percent decline in May spending, which had originally been reported as a smaller 0.7 percent drop.

Construction spending on new commercial buildings fell 3.4 percent to a $165.4 billion annual rate -- the slowest since September 1996 -- reflecting weak demand among firms for new properties.

Residential demand, buoyed by low mortgage rates, held up better, dropping only 0.9 percent in June.

Government outlays for new buildings fell for the second time in three months, down 3.1 percent.

Among businesses, lower outlays were seen in the hospitality sector, educational facilities and the catch-all "other commercial" category.

The weakness in government spending was centered in spending for new schools and for roads and highways.