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

In July, U.S. construction spending unexpectedly declined, reaching its lowest level in nearly three years, according to data released by the Commerce Department's Census Bureau. The spending dropped 0.5% to reach $2.158 trillion, marking the lowest point since October 2023. Economists had predicted that construction spending would remain steady in July.

A year-over-year comparison revealed a more significant decrease of 6.5%. The private sector witnessed the most substantial decline, with residential construction spending falling by 1.3%, particularly single-family housing projects which dropped by 3.2%. This downturn can be attributed to higher mortgage rates, with the 30-year fixed-rate mortgage hovering near a one-year high of 6.66%, up by 70 basis points since the U.S.-Israeli war with Iran began in late February.

The housing market is also grappling with an excess of unsold single-family homes. However, spending on multi-family housing units saw a slight increase of 0.2%. Federal and state government construction spending both remained unchanged and declined, respectively, while private nonresidential structures experienced a 0.4% increase, primarily driven by power plant investments.