U.S. home construction spending fell sharply in June as the Federal Reserve raised interest rates to fight inflation Monday, Commerce Department data showed.
Housing spending fell 1.6 percent year-on-year in seasonally adjusted terms to $932.9 billion in June, following a 0.8 percent increase in May. Spending has been slowing for the past five months. This is the first drop since May 2020.
Despite the decline, spending is still near record highs since the pandemic, which fueled the housing struggle, as many American families relocate to some of the largest cities for smaller cities, suburbs and rural areas. Compared to last year, housing construction costs increased by 15.4%.
Private sector spending on single-family homes fell 3.1 percent in June, seasonally adjusted, to $467.5 billion year-over-year. Compared to last year, spending in this category increased by 8.4 percent. Single-family homes are the most sensitive to changes in interest rates. In June, the average interest rate on the 30-year fixed mortgage rose to 5.52 percent, the highest level since November 2008, and fell slightly in July.
Home improvement spending remained fairly stable at around $355 billion. However, the figures were not adjusted for inflation. So this could reflect rising prices due to declining activity.
Total spending on construction projects fell 1.1% in June to $1.76 trillion annually in seasonally adjusted terms. Economists had expected growth to be 0.4%. The May issue was revised to show a 0.1 percent increase from the first report, which dropped 0.1 percent.
Non-residential spending fell 0.5 percent. Energy-related construction spending fell 1.8%, down 14.9 percent year on year, to $97.8 billion in seasonally adjusted terms. Private sector industrial construction fell 0.1 percent to $92.3 billion in June, but increased 202 percent from the previous year. Commercial construction fell 0.6% to $99.5 billion. It increased by 10.8% compared to last year.
Office construction spending rose 0.5% in June to $73.4 billion, but fell 2.1% year-on-year. Hotel and motel construction spending fell 2.1 percent to $16.4 billion, down 0.2 percent from the previous year.
Government construction spending fell 0.5% in June and rose 0.4% year-on-year. This decline was unexpected. Highway and road construction, the largest category of government building spending, fell sharply, and spending fell 2.7 percent to $97.4 billion in June. Government spending on education, the second largest category of government spending, fell 0.7% in June and was 4.8% lower than the previous year. Spending on transportation, the third largest category, fell 1 percent month-on-month to $40.4 billion in June and 2.7 percent year-on-year.
Department of Commerce figures are adjusted seasonally and annually, but not for price changes. As a result, growth or decline figures may not accurately reflect changes in actual activity. For example, higher inflation may cause a larger decline in real spending.
Source: Breitbart
