US construction spending drops to nearly three-year low in July

WASHINGTON, Sept 1 (Reuters) - U.S. ‌construction spending unexpectedly ​fell ​in July, hitting the lowest level in nearly three years as higher mortgage rates weighed on single-family homebuilding.

The Commerce Department's Census ‌Bureau said on Tuesday that construction spending dropped 0.5% to $2.158 trillion, ⁠the lowest level since October 2023. Data for June was revised higher to show construction ‌spending unchanged instead of dipping ‌0.1%, as previously reported. Economists polled by Reuters had forecast construction spending would be unchanged in July.

Construction spending plunged 3.8% on a year-over-year ​basis in July. Spending on private construction projects decreased 0.5% after easing 0.1% in June. Investment in residential construction tumbled 1.3%. Spending on single-family ⁠housing projects dropped 3.2%. On a year-over-year basis, it plummeted 6.5% in July.

Homebuilding is also being squeezed ​by a glut of unsold single-family houses. The average rate on the popular 30-year fixed-rate mortgage is hovering near ​a one-year high of 6.66%, data from mortgage ‌finance agency Freddie Mac showed. It has surged by almost 70 basis points since the U.S.-Israeli war with Iran ⁠started in late February.

Spending on multi-family housing units, which account for a small share of the housing market, rose 0.2% in July.

Investment in private nonresidential structures such as ⁠power plants and factories increased 0.4% in July. Spending on power plants rose 0.5%. ​But outlays on factory projects dropped 0.8% in July and 21.7% on a year-over-year basis as the boost from the 2022 CHIPS and Science Act fades. That fading momentum ‌has more than offset some of the lift from an artificial intelligence buildout. Investment in nonresidential structures contracted in ‌the second quarter, logging its 10th straight quarterly decline.

Investment in public construction projects ⁠fell 0.2% in July after gaining ‌0.1% in June. State ​and local government construction spending was unchanged, while outlays on federal government projects declined 3.5%.

(Reporting by Lucia Mutikani; Editing by ‌Paul Simao)

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