FILE PHOTO: Construction worker silhouetted during morning light
WASHINGTON(Reuters) – U.S. construction spending unexpectedly fell in March likely as a resurgence in mortgage rates weighed on homebuilding, but activity remains supported by an acute housing shortage.
The Commerce Department’s Census Bureau said on Wednesday that construction spending slipped 0.2% after being unchanged in February. Economists polled by Reuters had forecast construction spending gaining 0.3%. Construction spending increased 9.6% year-on-year in March.
Spending on private construction projects decreased 0.5% in March after rising 0.2% in February.
Investment in residential construction dropped 0.7% after increasing 0.7% in the prior month. Outlays on new single-family construction projects fell 0.2%.
Census Department data on Tuesday showed there were 728,000 housing units for sale in the first quarter compared to 665,000 in the first three months of 2023. Supply is below the 1.145 million units before the COVID-19 pandemic.
Residential investment grew at its fastest pace in more than three years in the first quarter, contributing to the economy’s 1.6% annualized expansion pace.
Higher borrowing costs, however, are an obstacle. The average rate on the popular 30-year fixed-rate mortgage has jumped to a five-month high of 7.17%, latest data from mortgage finance agency Freddie Mac showed.
Outlays on multi-family housing projects dropped 0.6% in March. Spending on private non-residential structures like factories fell 0.2%. There were decreases in spending on hotels and motels, churches and power stations. They more than offset gains in amusement and recreation facilities as well as manufacturing, office space and education facilities.
Spending on structures contracted in the first quarter for the first time in more than a year as the boost from policies by the Biden administration to bring the production of semiconductor manufacturing back to the United States faded.
Investment in public construction projects increased 0.8% after falling 0.4% in February.
State and local government spending rose 0.6% and outlays on federal government projects surged 3.6%.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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