Oct. 2 (Bloomberg) -- Construction spending in the U.S. unexpectedly rose in August as companies increased investment in office buildings, factories and hospitals.

Spending rose 0.3 percent following a revised 1.0 percent drop the month before, the Commerce Department said today in Washington.

Corporate spending on new facilities is helping to soften the blow to the economy from the slump in home-building. Sliding home sales and construction are curbing economic growth as consumers find it harder to borrow against the value of their homes to finance spending.

Non-residential construction ``does help mitigate some of the drag in residential construction,'' Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. ``However, this is not something that suggests that the trend is changing.''

Economists forecast construction spending would fall 0.3 percent, after an originally reported 1.2 percent drop in July, according to the median of 39 forecasts in a Bloomberg News survey. Estimates ranged from a decline of 1.5 percent to a gain of 0.8 percent.

Private non-residential construction rose 3.4 percent in August and was up 24 percent from the same month a year ago. Including public projects, non-residential construction rose 2.3 percent.

Spending on public construction rose 1.1 percent after falling 1.2 percent a month earlier.

Building Materials

Building-materials supplier Texas Industries Inc. reported a profit for its fiscal first quarter, compared with a loss last year, because it raised cement prices and demand increased.

``Margins improved significantly compared to a year ago primarily as a result of increased product prices,'' Mel Brekhus, the Dallas-based company's chief executive officer, said in a statement on Sept. 28.

Private residential construction spending fell 1.5 percent in August, the fifth straight decline, after a 2.1 percent decrease the month before.

The U.S. housing market is sagging after five years of record sales that helped drive the nation's economic growth.

Housing starts fell to a three-year low in August as inventories of unsold homes swelled, a government report showed last month. Building permits dropped for a seventh straight month to the lowest level in four years, a sign home construction will keep slowing.

Higher mortgage rates are keeping Americans out of the market for new homes. The average rate on a 30-year fixed mortgage was 6.55 percent in August, compared with 5.82 percent in the same month of 2005, according to Freddie Mac, the second- largest source of money for U.S. home loans.

Luxury Homes

Toll Brothers, the largest luxury-home builder in the U.S., said orders for houses fell 48 percent in the three months ended June 30, and it cut its profit forecast for the following quarter in an Aug. 22 announcement.

Technical Olympic USA said on Sept. 27 that its Transeastern venture in Florida won't meet the company's sales forecast because of slowing housing demand in that region. The Hollywood, Florida-based company is a public unit of Technical Olympic SA.

Efforts to cut costs ``haven't been able to fully offset the reduction in profitability caused by the current market conditions,'' Transeastern President Tommy McAden said in a statement.

The economy expanded at a 2.6 percent annual rate in the second quarter, dragged down by weaker business spending, consumer demand and homebuilding, the Commerce Department said last week. Residential investment subtracted 0.72 percentage point from gross domestic product during the period.

``A soft spot in the economy is the housing market,'' Edward Lazear, chairman of the White House Council of Economic Advisers, said in testimony to the Senate Budget Committee on Sept. 28. ``It appears that the housing slowdown will be a significant drag on third-quarter growth.''

Economic growth probably will hold near the 2.6 percent rate the rest of this year and into the first half of 2007, a Bloomberg survey of economists taken earlier this month showed.

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

Last Updated: October 2, 2006 10:00 EDT