Shockwave: March Sees Unforeseen Drop in U.S. Construction Spending

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March witnessed an unexpected decrease in U.S. construction spending, attributed to a resurgence in mortgage rates impacting homebuilding. Despite this setback, the construction sector continues to grapple with a housing shortage, maintaining activity levels.

U.S. Construction

In an unforeseen turn, U.S. construction spending experienced a downturn in March, primarily influenced by a resurgence in mortgage rates, which cast a shadow on homebuilding activities. Although the construction sector faced this setback, the overarching issue of housing scarcity continues to sustain overall activity.

The Commerce Department’s Census Bureau reported a 0.2% slip in construction spending for March, following a period of stagnation in February. Economists, who had anticipated a 0.3% increase, were caught off guard by this downturn. Nevertheless, there was a notable 9.6% year-on-year increase in construction spending for March.

Within the realm of private construction projects, expenditure decreased by 0.5% in March, contrasting with a modest 0.2% rise in February. Residential construction investment witnessed a 0.7% decline, counteracting the 0.7% growth observed in the previous month. Specifically, outlays on new single-family construction projects decreased by 0.2%.

Insights from the Census Department revealed a noteworthy increase in housing units for sale in the first quarter, indicating a significant rise from the previous year. However, despite this uptick, the supply remains below pre-pandemic levels, posing a persistent challenge to the market.

Notably, residential investment saw its most rapid growth in over three years during the first quarter, contributing to a 1.6% annualized expansion in the economy. Yet, this growth is tempered by the obstacle of higher borrowing costs, exemplified by the average rate on 30-year fixed-rate mortgages reaching a five-month high of 7.17%.

March also witnessed declines in spending on multi-family housing projects and private non-residential structures like factories. While some sectors experienced gains, such as amusement and recreation facilities, others, including hotels, motels, and churches, saw declines.

The first quarter marked a contraction in spending on structures, attributed to the waning impact of policies aimed at revitalizing semiconductor manufacturing within the United States.

In contrast, public construction projects experienced a slight uptick, with state and local government spending rising by 0.6%, and federal government outlays surging by 3.6%.

In summary, March’s unexpected decline in U.S. construction spending underscores the challenges posed by fluctuating economic factors, particularly in the face of housing shortages and rising mortgage rates.

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