NEW YORK - New construction starts in July slipped 4 percent from a very strong June at a seasonally adjusted annual rate of $512.9 billion, according to McGraw-Hill Construction Dodge, a division of the McGraw-Hill Cos.

Both nonresidential building and housing were down slightly, while a more substantial decline was reported for nonbuilding construction. Through the first seven months of 2003, total construction activity was 1 percent below the same period a year ago.

July's data produced a 154 reading for the Dodge Index, which uses 1996 as the base year, compared to a revised 160 for June. During the first five months of 2003, the index averaged 148.

"The construction industry got off to a sluggish start in 2003, and more recently it has picked up the pace," said Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction Dodge.

"The modest retreat in July was expected, since June was helped by projects that had been previously deferred. July still qualifies as the second-strongest month so far in 2003, and it has helped the 2003 year-to-date figures narrow the gap with 2002. At the same time, the construction industry going forward continues to face several constraints - high vacancy rates for commercial properties, plus the sharply diminished fiscal health of the federal and state governments." Murray said.

Nonresidential building in July retreated 1 percent to $154.9 billion. School construction jumped 12 percent. Health care facilities rebounded 22 percent after a weak June, aided by the start of a $200 million hospital in Chicago. Warehouses, up 44 percent, also rebounded from a weak June, while hotel construction increased 54 percent with the help of a $135 million convention center-related hotel in Denver.

Residential building, at $267.9 billion, was down 1 percent in July. Single-family housing held steady with the prior month, while multifamily housing fell 4 percent. The volume of single-family housing remains robust - July's pace was 8 percent above the average for last year. Mortgage rates did rise during July, with the 30-year fixed rate climbing to 5.9 percent by the end of the month (compared to 5.2 percent at the end of June), and August marked a further increase to 6.3 percent. But, Murray noted, the negative impact of rising mortgage rates on home-buyer demand often takes place with a lag.

"In the past, when mortgage rates have begun to move upward, potential homebuyers who were 'sitting on the fence' were spurred to action. The dampening impact on demand and construction does not become apparent until several months after rates have moved upward, meaning that any slowdown for single family housing this year is still a few months away," Murray said.

Region U.S. figures were mostly lower. The Midwest was up 1 percent, the West had no change, the South Atlantic was down 1 percent, the South Central U.S. dropped 2 percent; and the Northeast, down 6 percent.

Nonbuilding construction in July dropped 15 percent to $90.2 billion. This followed a 29 percent increase in June, which featured widespread gains as projects that had been held back earlier in the year broke ground. The pace for nonbuilding construction in July was still 6 percent above the average for the January-May period