Residential building picked up in July after four straight months of decline and public construction also shot up, sending total construction spending up 1.2 percent, the Commerce Department reports.

However, the Bureau of Labor Statistics revised total construction spending for June sharply downward to $396.2 billion from the previously reported $402.8 billion. That took the decline from May to June to 1.5 percent compared with the previously reported 0.1 percent rise."The big news was the big downward revision in June," said Michael Evans, president of Evans Economics Inc. of Washington. "The economy is slowing down, and this is another report that proves it."

Cynthia Latta, senior economist for Data Resources Inc. of Lexington, Mass., agreed the July rise was not the good news it appeared.

"The rise in July was nothing but an offset for the June drop," she said. "Public spending gave it some `oomph,' but private spending is quite weak."

Builders started new construction in July at a seasonally adjusted annual $402.0 billion, 1.2 percent more than the revised June estimate of $396.2 billion, the department's Census Bureau said.

Analysts had expected a more sluggish 0.3 percent increase.

Residential building rose 0.5 percent in July to a seasonally adjusted $188.3 billion despite rising interest rates after falling every month since March, the report said.

Non-residential construction dropped 0.5 percent in July to a seasonally adjusted annual $94.2 billion while public construction jumped 3.8 percent to a seasonally adjusted annual $81.2 billion, the bureau said.

In the first seven months of 1988, there was $220.4 billion in new construction, 0.9 percent above the same period of 1987, the bureau said.

On Aug. 9, the Federal Reserve Board increased its benchmark discount interest rate from 6 percent to 6.5 percent to curb inflation, and some analysts expect another hike if inflation persists.

The report on construction spending "does suggest that higher interest rates are taking some of the steam out of that market," Latta said.