US construction spending hits near three-year low in July

US construction spending unexpectedly declined in July, reaching its lowest level in nearly three years, as elevated mortgage rates continued to weigh on the housing market.

The Commerce Department's Census Bureau reported that construction spending fell 0.5% to $2.158 trillion, the weakest reading since October 2023. June's figures were revised to show no change, rather than the previously reported 0.1% dip. Economists had expected spending to remain flat in July.

On a year-over-year basis, construction spending was down 3.8%. The decline was led by a 1.3% drop in residential investment, with spending on single-family homes plunging 3.2% compared to June and 6.5% from a year earlier. The housing sector is also contending with an oversupply of unsold homes.

The average rate on a 30-year fixed-rate mortgage is hovering near a one-year high of 6.66%, according to Freddie Mac. Rates have climbed by nearly 70 basis points since late February.

Spending on multi-family housing, a smaller segment, edged up 0.2%. Private nonresidential investment rose 0.4%, helped by a 0.5% gain in power plant outlays. However, factory construction spending fell 0.8% in July and 21.7% year-over-year, as the boost from the 2022 CHIPS and Science Act fades, offsetting gains from AI-related projects.

Public construction spending slipped 0.2%, with federal projects down 3.5% while state and local outlays were flat.