Commerce Bureau reports sharp drop in US construction spending

Homebuyers and building contractors faced a cooling market in September as total construction spending in the United States dropped by 1.9 percent. This monthly decline reversed the previous month's upwardly revised gain of 2.0 percent. The drop left spending down 2.7 percent compared to the same period last year, according to data released by the Commerce Department’s Census Bureau on Monday.

The primary driver of the monthly decline was a steep fall in investment for residential projects, which slumped 5.5 percent in September. Economists polled by Reuters had predicted a modest 0.3 percent increase for the month, following a previously reported 0.9 percent rise in August. The data suggests that high material costs weighed heavily on renovation projects, while outlays for single-family housing remained flat month over month but fell 2.4 percent year over year.

Mortgage rates have surged in response to the US-Israeli war with Iran, which began in late February. Data from mortgage finance firm Freddie Mac indicates that the average rate on a 30-year fixed mortgage has risen by at least 125 basis points since the conflict started. This increase has pushed residential investment back into contraction for the third quarter.

Sector performance varied widely outside of residential housing. Spending on private nonresidential structures climbed 1.1 percent in September, with power plant outlays advancing 1.2 percent. Conversely, public construction investment decreased 0.1 percent after a 0.2 percent gain in August. State and local government spending fell 0.3 percent, while federal government project outlays jumped 2.5 percent.