by Arsene Aka, Senior Economist at Dodge Construction Network
The latest data released by the U.S. Commerce Department (Census Bureau) shows that construction spending fell for the second straight month in June. After dipping unexpectedly 0.4% in May, construction spending fell an additional 0.3% in June to a seasonally adjusted annual rate of $2,148 billion. Economists had expected the total value of construction put in place to rise 0.2% in June. The data shows that spending on both residential and nonresidential construction projects declined that month.
Spending on residential construction slid 0.4% to an annual rate of $940 billion, driven by lower outlays on new single-family construction projects (-1.2%). Meanwhile, spending on multi-family housing gained a modest 0.1%. The residential sector remains constrained by high mortgage rates and worsening builder confidence. The outlook for new single-family homes is positive, as mortgage rates are expected to come down after the Federal Reserve opened the door to reducing key rates as soon as September.
On the other hand, spending on nonresidential construction edged down 0.2% to an annual rate of $1,209 billion. Monthly declines in spending were recorded for 7 of the 16 nonresidential construction sectors, with the largest declines occurring in commercial and health care. Spending on manufacturing projects grew modestly (0.1%) in June.
Despite the monthly decline, construction spending rose 6.2% year-on-year (y/y) in June and 8.6% y/y in the first half of the year. Both nonresidential and residential construction outlays were up by more than 8.5% y/y in the first six months. Dodge Construction Network expects two Fed rate cuts this year, which will help support construction spending. In addition, outlays will also be helped by higher construction starts and continued federal funding. Overall, Dodge continues to expect robust growth in construction spending over the next two years.
