Construction Spending Weakens

Construction spending dipped in May for the seventh straight month, the U.S. Commerce Department reported Tuesday.

Both residential and nonresidential outlays pulled back during the month as construction spending dipped 0.3%.

In its analysis, Wells Fargo Economics noted that while home improvement, data center, infrastructure and institutional outlays generally continue to outperform, high interest rates and elevated economic uncertainty remain a significant headwind for new project starts.

“High interest rates are knocking back residential construction,” Wells Fargo Economics said. “Residential construction spending dipped 0.5% in May, the fifth consecutive decline. Taken year-to-date, residential outlays have receded 3.4%.”

Wells Fargo Economics noted persistent housing market affordability issues continue to dampen single-family construction, prompting a significant 1.8% downturn in single-family outlays in May. “Declining builder confidence and a downtrend in single-family permits signify that more weakness is likely in store,” the analysis said. “Single-family permits are down 6.6% on a year-to-date basis through May, currently at their lowest level in more than two years.”

Home improvement spending rose 1.1% in May, the first upturn in six months. Wells Fargo Economics said a de-escalation in tariff tensions may have bolstered consumer resolve and high mortgage rates may be pushing consumers to invest in home improvements rather than purchase a new home. “The tide appears to be turning in favor of multifamily construction,” the report said.

Multifamily outlays have been essentially flat since January and the year-over-year decline in outlays softened to 10.9% in May, the softest annual decline in 12 months. “The stabilization in activity occurred against a backdrop of stronger apartment demand and steadying apartment vacancy rates.”