US construction spending edged up by 0.1% in May, according to the Commerce Department's Census Bureau, following a downwardly revised 0.3% increase in April. As reported by The Economic Times, economists had forecast construction spending to gain 0.1% after a previously reported 0.4% increase in April. The Associated General Contractors of America reports that total construction spending reached a seasonally adjusted annual rate of $2.210 trillion in May, with the modest growth reflecting ongoing economic challenges in the construction sector, with higher borrowing costs linked to the Middle East conflict limiting momentum across the sector.
New single-family housing projects experienced a downturn, with spending dropping 0.1% in May and tumbling 4.0% year-over-year. According to The Economic Times, the U.S.-Israeli war with Iran boosted oil prices, driving up inflation and mortgage rates. The average rate on the popular 30-year fixed-rate mortgage has increased by about 50 basis points since the conflict started at the end of February, averaging 6.49% last week. Multi-family housing units also declined 0.1% in May, reflecting the broader housing market weakness, with spending on multi-family housing units, which account for a small share of the housing market, dipping 0.1% in May. However, private residential construction increased 0.3% in May and was up 1.8% from a year earlier, driven by an 8.1% increase in residential additions and renovations, as reported by the Associated General Contractors of America.
Highway and street construction emerged as a bright spot, with spending rising 0.6% from April and 2.9% year-over-year, making it the largest public construction category. According to the Associated General Contractors of America, highway construction is one of the strongest segments of the construction market, with infrastructure investment offsetting weakness in several private segments. Public construction projects showed resilience, with investment increasing 0.5% after a similar gain in April, and public construction spending rose 0.4% in May while being up 0.3% from a year earlier. State and local government construction spending rose 0.4% in May, while federal government projects jumped 1.3%, likely boosted by the building of detention centers as part of an immigration crackdown.
Private nonresidential construction declined 0.3% in May and was down 6.6% year-over-year, reflecting broader economic headwinds. As reported by the Associated General Contractors of America, manufacturing construction dropped 22.0% over the past 12 months, while commercial construction fell 5.5% and health care construction declined 5.9% year-over-year. Educational construction decreased 2.5% year-over-year, though office construction increased 0.2% during the month and 4.7% from a year earlier, supported by a 23.0% increase in data center construction over the past 12 months. Despite a surge in data center construction to support artificial intelligence, overall nonresidential investment remained subdued.
Construction spending fell 1.5% on a year-over-year basis in May, highlighting the challenging environment facing the construction sector. The Associated General Contractors of America reports that private nonresidential construction was down 6.6% year-over-year, with manufacturing construction showing the steepest decline. However, infrastructure investment is helping offset weakness in private segments, with highway and street construction showing strong performance. The association is urging Congress and the White House to renew the federal surface transportation law before it expires September 30, with CEO Jeffrey D. Shoaf noting that federal transportation investments have helped support construction activity, job growth and stronger economic performance across the country.
