U.S. homebuilding fell for a second straight month in June and permits dropped to a two-year low, suggesting the housing market continued to struggle despite declining mortgage rates.

The Commerce Department report on Wednesday also showed housing completions at a six-month low and a modest increase in the number of homes under construction, indications that an inventory squeeze that has haunted the market could persist for a while. Weak housing and manufacturing are holding back the economy, offsetting strong consumer spending.

Land and labor shortages, as well as expensive building materials, are making it difficult for builders to meet demand for housing, especially in the lower price segment of the market.

Mortgage rates have been decreasing since the Federal Reserve signaled it was pausing its interest rate raising campaign. Borrowing costs could drop further as the U.S. central bank is poised to cut rates this month for the first time in a decade to protect the economy from rising threats from Washington’s trade dispute with Beijing, and slowing global growth.

"Residential housing construction is one of the leading indicators of a recession, and while construction activity isn’t dropping precipitously, housing is stuck in a rut,” said Chris Rupkey, chief economist at MUFG in New York. “If the Fed thinks rate cuts are going to send housing construction up like a rocket, they better think again.”

Housing starts decreased 0.9 percent to a seasonally adjusted annual rate of 1.253 million units last month as a rebound in the construction of single-family housing units was overshadowed by a plunge in multi-family homebuilding, the government said.