U.S. construction spending falls sharply as residential investment weakens

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Artem Shendetskii

4 hours ago

U.S. construction spending falls sharply as residential investment weakens — Construction spending dips sharply

Higher materials costs and pressure on housing-related activity weigh on U.S. construction outlays in September after a strong gain a month earlier. The decline is broad enough to nearly reverse August's revised increase, with residential renovation activity appearing to be a major drag.

Highlights

U.S. construction spending fell 1.9% in September after a revised 2.0% August gain, missing expectations for a 0.3% rise.
Residential investment slumped 5.5% in September, with single-family housing spending flat month-on-month and down 2.4% year-on-year despite a 0.1% rise in multifamily.
Mortgage rates have increased by at least 125 basis points since late February due to the U.S.-Israeli war with Iran, pressuring residential construction further.

September decline driven by housing and private projects

As reported by Reuters, citing the Commerce Department's Census Bureau, U.S. construction spending falls 1.9% in September after an upwardly revised 2.0% increase in August. Economists polled by Reuters had expected a 0.3% rise following a previously reported 0.9% gain in August.

Construction spending drops 2.7% from a year earlier in September. Spending on private construction projects decreases 2.4% in the month after rising 2.6% in August.

Investment in residential projects slumps 5.5% in September, likely reflecting weakness in renovation activity. Outlays on single-family housing projects are unchanged on the month but stand 2.4% lower than a year earlier, while spending on multifamily housing units edges up 0.1%.

Mortgage rate pressure shapes broader construction outlook

Residential investment eases back into contraction in the third quarter as the U.S.-Israeli war with Iran pushes up mortgage rates. The average rate on a 30-year fixed-rate mortgage has soared by at least 125 basis points since the war started in late February, according to data from mortgage finance firm Freddie Mac.

Outside housing, investment in private nonresidential structures increases 1.1% in September, with spending on power plants up 1.2%. Public construction investment dips 0.1% after a 0.2% gain in August, as state and local government construction spending falls 0.3% while federal government project outlays jump 2.5%.

In our earlier article on the U.S. AI data center construction boom, we highlighted how higher borrowing costs, inflation, and power constraints are increasingly slowing projects and raising the risk of delays or cancellations. We also noted that funding pressure and cost overruns can undermine investor confidence, putting developers under strain to deliver large-scale builds on time and within budget.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.

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