Contracting for new construction fell 3 percent in July to an annual rate of $434.4 billion, according to the F.W. Dodge Division of the McGraw-Hill Cos. Non residential building retreated following a strong June, while residential building continued to decline from the brisk pace reported at the start of 2000. At the same time, public works construction witnessed improvement during July.

Last month's data produced a reading of 172 for the Dodge Index, down from a revised 178 for June. Nonresidential building in July dropped 8 percent to $150.6 billion. While stores and shopping centers remained even with June, other commercial categories posted declines. The July slowdown for commercial building may be an initial sign that this sector, too, will experience some loss of momentum during the coming months.

Residential building has now declined for four months in a row, as higher mortgage rates over the past year are having some dampening impact on homebuyer demand. Yet the dampening is likely to stay moderate, and even ease, given the recent pattern of mortgage rates.