US Construction: September Spending Drops Sharply

The US construction sector faced a sharp pullback in September as high material costs weighed on home improvement projects. The Commerce Department’s Census Bureau reported on Monday that total construction spending fell 1.9% for the month. This decline nearly erased the upwardly revised 2.0% gain recorded in August.

Three main factors defined the monthly report. First, residential investment slumped 5.5%, a drop the agency attributed to weakness in renovation work. Second, private construction spending decreased 2.4% following a 2.6% increase in the prior month. Third, public investment dipped 0.1%, though federal project outlays jumped 2.5% while state and local spending fell 0.3%.

Mortgage rates played a central role in the residential slowdown. The average rate on a 30-year fixed loan rose at least 125 basis points since the US-Israeli war with Iran began in late February. Data from mortgage finance firm Freddie Mac confirmed this surge, which pushed residential investment back into contraction during the third quarter.

Economic expectations had been more optimistic. Economists polled by Reuters forecast a 0.3% increase in September spending after a previously reported 0.9% rise in August. The actual figures showed a year-over-year decline of 2.7% for total spending. Single-family housing outlays remained unchanged month-over-month but were down 2.4% compared to the previous year.

Nonresidential activity showed mixed results. Investment in private nonresidential structures increased 1.1%, driven by a 1.2% rise in power plant outlays. Multifamily housing units, which represent a small portion of the market, edged up 0.1% in September. The data reflects a sector adjusting to elevated financing costs despite steady demand for infrastructure and power facilities.