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US construction spending unexpectedly fell in January as weakness in outlays on public projects more than offset a moderate increase in private homebuilding.
The Commerce Department said on Friday that construction spending dropped 0.2 per cent. Data for December was revised higher to show construction spending increasing 1.1 per cent instead of 0.9 per cent as previously reported.
Economists polled by Reuters had forecast construction spending rising 0.2 per cent. Construction spending increased 11.7 per cent year-on-year in January.
Spending on private construction projects gained 0.1 per cent in January after rising 0.8 per cent in December. Investment in residential construction rose 0.2 per cent after surging 1.4 per cent in the prior month.
Outlays on new single-family construction projects increased 0.6 per cent. Though demand for new construction remains underpinned by tight housing supply, higher mortgage rates are keeping many first-time buyers out of the market.
The average rate on the popular 30-year fixed-rate mortgage is hovering just under 7 per cent, having risen from 6.62 per cent at the beginning of the year, according to data from mortgage finance agency Freddie Mac. It has, however, come down from 7.79 per cent in late October, which was the highest level since 2000.
Recent government data showed there were 757,000 housing units for sale in the fourth quarter, well below the 1.145 million units before the COVID-19 pandemic.
Outlays on multi-family housing projects dropped 0.4 per cent in January. There is a large stock of multi-family housing in the pipeline, which could limit any rebound.
Outlays on private non-residential structures like factories slipped 0.1 per cent. Spending on manufacturing construction projects advanced 2.0 per cent, still benefiting from a policy by President Joe Biden's administration to bring semiconductor manufacturing back to the United States fades.
Spending on public construction projects declined 0.9 per cent after rising 2.0 per cent in December.
State and local government spending dropped 1.0 per cent and outlays on federal government projects fell 0.2 per cent.