U.S. construction spending unexpectedly jumped in August, primarily driven by increased outlays on nonresidential structures such as offices and power plants. However, the overall trend in construction remains weak due to elevated mortgage rates impacting homebuilding, according to reports.
The Commerce Department’s Census Bureau reported on Thursday that construction spending rose by 0.9% in August. This figure follows an upwardly revised 0.1% dip in July. The August increase surpassed economists' forecasts; economists polled by Reuters had anticipated construction spending to remain unchanged for the month, after a previously reported 0.5% decline in July.
Despite the monthly surge, construction spending declined by 1.7% on a year-over-year basis in August, indicating a broader slowdown. Investment in private construction projects experienced a 1.1% increase in August, rebounding from a 0.2% fall in July. Within private construction, spending on nonresidential structures specifically climbed by 1.0% in August.
Several key nonresidential sectors showed significant growth. Outlays on office projects, for instance, soared by 4.6%, while spending on power plants rose by 0.9% during August. This suggests a notable uptick in commercial and industrial development.
Investment in residential projects also saw a surge of 1.1% in August, which the Census Bureau stated likely reflects renovations rather than new home construction. Spending on single-family housing projects increased marginally by 0.2% in August. However, on a year-over-year basis, single-family housing outlays dropped by 3.5%, underscoring the ongoing challenges in the new home market.
Higher mortgage rates continue to exert pressure on the housing sector. The average rate on a 30-year fixed-rate mortgage reached 7.03% last week, marking its highest level since January 2025, according to data from mortgage finance firm Freddie Mac. This rate has climbed by more than 100 basis points since late February, a period coinciding with the start of the US-Israeli war with Iran. The rise in rates is weighing on demand for homes and contributing to an existing overhang of unsold new homes on the market. Spending on multi-family housing units, which constitute a smaller segment of the overall housing market, increased by 0.2% in August.
Public construction projects also saw an increase, rising by 0.2% in August, following a slight 0.1% edge up in July. State and local government construction spending advanced by 0.3% during the month, contributing to the public sector's growth. In contrast, outlays on federal government projects declined by 0.7% in August.