Analysts polled by Reuters ahead of the report were expecting a 0.8 percent decrease in construction spending in September. The figure for August was revised to a 0.3 percent increase, which was originally reported as unchanged.
Private residential construction fell 1.3 percent as did public construction, its sharpest drop in more than six months. Overall private construction rose 0.1 percent led by a 1.2 percent increase in non-residential building.
The annual rate of construction spending in September was $1.060 trillion.
The dollar trimmed gains along with markets early Monday after a separate report showed that U.S. factory activity shrank more sharply than expected in October.
Construction spending by the Federal government declined 7 percent, the sharpest since an 8.4 percent drop in February 2007 and the biggest drop among the sectors in the report.
Lawmakers are considering whether to expand spend on infrastructure projects as a way to give the ailing economy a boost.
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