High Material Costs Cut September Building Outlays by 1.9%

US construction spending fell 1.9% in September, reversing the upwardly revised 2.0% gain recorded in August. The Commerce Department’s Census Bureau released the data on Monday, showing that outlays on residential renovation projects likely drove the decline due to elevated materials costs.

Economists surveyed by Reuters had predicted a 0.3% increase for the month. Instead, total spending dropped 2.7% compared to the same period last year. Private construction projects saw a 2.4% decrease after gaining 2.6% in the prior month.

Investment in residential projects slumped 5.5% in September. Outlays on single-family housing projects remained unchanged month-over-month but were down 2.4% on a year-over-year basis. Multifamily housing unit spending edged up 0.1%, a small portion of the overall market.

The retreat in residential investment followed a contraction in the third quarter. Data from Freddie Mac shows the average rate on a 30-year fixed-rate mortgage has risen by at least 125 basis points since the US-Israeli war with Iran began in late February. Higher borrowing costs appear to be weighing on renovation activity.

Private nonresidential structures saw a 1.1% increase in spending. Outlays on power plants advanced 1.2% during the period. Public construction investment dipped 0.1% after a 0.2% gain in August. State and local government spending fell 0.3%, while federal government project outlays jumped 2.5%.