U.S. construction spending fell further in July as rising mortgage rates hit construction of single-family homes, offsetting a rebound in outlays for public projects.
The Commerce Department said Thursday that construction spending fell 0.4% in July after declining 0.5% in June. July’s decline was in line with economists’ expectations. Construction spending increased by 8.5% year-on-year in the seventh month of the year.
Spending on private construction projects fell 0.8% after declining 0.7% in June. Investment in residential construction fell 1.5% and spending on single-family projects fell 4.0%. Disbursements in multi-family housing projects fell by 0.6%.
Rising mortgage rates have combined with higher home prices that are reducing the purchasing power of Americans, especially for those looking to buy their first homes, slowing down the real estate market.
Residential spending contracted at its fastest pace in two years in the second quarter. This factor contributed to Gross Domestic Product contracting at an annualized rate of 0.6% last quarter, after declining at a 1.6% pace in the January-March quarter.
The Federal Reserve has raised its policy rate by 225 basis points since March.
Investment in private non-residential structures such as oil and gas well drilling increased 0.4% in July. Outlays on nonresidential facilities have declined for five consecutive quarters.
Spending on public construction projects rose 1.5% after rising 0.1% in June. State and local government investment in construction projects increased 1.6%, while federal government spending rose 0.1%.