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

WASHINGTON, Sept 1 (Reuters) - U.S. construction spending unexpectedly fell in July, hitting the lowest level in nearly three years as higher mortgage ‌rates weighed on single-family homebuilding.

The Commerce Department's Census Bureau said on Tuesday ‌that construction spending dropped 0.5% to $2.158 trillion, the lowest level since October 2023. Data for June ​was revised higher to show construction spending unchanged instead of dipping 0.1%, as previously reported. Economists polled by Reuters had forecast construction spending would be unchanged in July.

Construction spending plunged 3.8% on a year-over-year basis in July. Spending on private ‌construction projects decreased 0.5% after ⁠easing 0.1% in June. Investment in residential construction tumbled 1.3%. Spending on single-family housing projects dropped 3.2%. On a year-over-year ⁠basis, it plummeted 6.5% in July.

Homebuilding is also being squeezed by a glut of unsold single-family houses. The average rate on the popular 30-year fixed-rate mortgage is hovering ​near ​a one-year high of 6.66%, data from ​mortgage finance agency Freddie Mac showed. ‌It has surged by almost 70 basis points since the U.S.-Israeli war with Iran started in late February.

Spending on multi-family housing units, which account for a small share of the housing market, rose 0.2% in July.

Investment in private nonresidential structures such as power plants and factories increased 0.4% in July. Spending on ‌power plants rose 0.5%. But outlays on ​factory projects dropped 0.8% in July and 21.7% ​on a year-over-year basis as ​the boost from the 2022 CHIPS and Science Act fades. ‌That fading momentum has more than offset ​some of the ​lift from an artificial intelligence buildout. Investment in nonresidential structures contracted in the second quarter, logging its 10th straight quarterly decline.

Investment in public construction ​projects fell 0.2% in ‌July after gaining 0.1% in June. State and local government construction ​spending was unchanged, while outlays on federal government projects declined 3.5%.

(Reporting ​by Lucia Mutikani; Editing by Paul Simao)