U.S. Construction Spending Declines in August

WASHINGTON (Reuters) – U.S. construction spending unexpectedly fell in August, primarily due to a significant drop in expenditures on single-family housing projects. However, declining borrowing costs may stimulate future activity.

The Commerce Department’s Census Bureau reported on Tuesday that construction spending dipped by 0.1% after a downwardly revised 0.5% decrease in July. Economists surveyed by Reuters had anticipated an increase of 0.1% in construction spending following a previously reported 0.3% decline.

On a year-over-year basis, construction spending was up 4.1% in August.

Spending on private construction projects declined 0.2% in August after a decline of 0.7% in July. Investment in residential construction decreased by 0.3%, with spending on new single-family projects plunging 1.5%.

The growing supply of new homes on the market is dissuading builders from starting new housing projects. Furthermore, potential buyers are waiting for lower mortgage rates, which could limit the impact of decreasing borrowing costs in the short term. The Federal Reserve lowered interest rates last month for the first time in four years, and a further rate cut is anticipated in November and December.

Mortgage rates are currently at two-year lows, while the inventory of new homes is at levels not seen since early 2008.

Spending on multi-family housing units fell 0.4%, though investments in home renovations increased. Additionally, spending on private non-residential structures, such as offices and factories, dipped 0.1%.

In contrast, spending on public construction projects rose 0.3%, following a 0.5% increase in July, with state and local government spending also increasing by 0.3% and federal government project outlays increasing by 0.5%.