U.S. construction spending fell 0.3% in May, the Commerce Department’s Census Bureau reported on July 1, following an upwardly revised 0.2% decline in April. Economists had expected a 0.2% drop after the previously reported 0.4% April contraction.
On a year-over-year basis, total spending was down 3.5% in May. Private sector outlays slipped 0.5%, with residential investment also down 0.5%; spending on new single-family housing plunged 1.8% as higher mortgage rates and rising inventories weighed on demand. A National Association of Home Builders survey showed builder sentiment at a 2½-year low in June, forecasting further declines in single-family starts.
Multifamily housing outlays were flat, while private non-residential construction fell 0.4%. Public construction spending edged up 0.1%, as a 1.0% rise in federal project spending offset unchanged state and local expenditures.
Economists blame sustained high borrowing costs and tariffs on imported materials for the slowdown, noting new housing inventory has reached levels not seen since late 2007. The Federal Reserve’s decision to pause rate cuts has added uncertainty to the outlook for housing and infrastructure investments.
Many market participants will now look to upcoming economic data for signs of whether borrowing costs and inventory overhang will ease in coming months.
