US construction spending unexpectedly falls in May

US CONSTRUCTION spending unexpectedly fell in May as higher mortgage rates depressed single-family homebuilding, and recovery is likely to be muted by improving housing supply.

The Commerce Department’s Census Bureau said on Monday (Jul 1) that construction spending dipped 0.1 per cent after an upwardly revised 0.3 per cent increase in April. Economists polled by Reuters had forecast construction spending rebounding 0.2 per cent after a previously reported 0.1 per cent fall in April.

Construction spending increased 6.4 per cent year-on-year in May.

Spending on private construction projects slipped 0.3 per cent in May after rising 0.4 per cent in the prior month. Investment in residential construction dropped 0.2 per cent after surging 0.9 per cent in April. Outlays on new single-family construction projects decreased 0.7 per cent. Spending on multi-family housing was unchanged.

Mortgage rates shot up in May, hurting homebuilder confidence, homebuilding and home sales.

Housing supply has improved considerably as the higher borrowing costs stifle demand, which could limit growth in new construction. The inventory of previously owned homes in May was the largest since August 2022, while new housing supply was the highest in more than 16 years.

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Residential investment is expected to have slowed sharply in the second quarter after logging double-digit growth in the January-March quarter.

In May, spending on private non-residential structures like factories fell 0.3 per cent. Investment in public construction projects increased 0.5 per cent after being unchanged in April. State and local government spending gained 0.2 per cent, and outlays on federal government projects surged 3.1 per cent. REUTERS