US construction spending drops 1.9% in September

US construction spending fell 1.9% in September, wiping out most of the previous month's gains. The Commerce Department's Census Bureau reported this drop on Monday, noting that the August figure had been revised upward to a 2.0% increase. Economists polled by Reuters had expected a 0.3% rise in September, following the initially reported 0.9% gain in August.

Residential investment slumped 5.5% last month. This decline likely reflects weakness in renovation projects, where high materials costs suppressed outlays. Single-family housing spending remained unchanged month over month but dropped 2.4% compared to the same period last year. Multifamily housing spending edged up 0.1%, though this sector represents a small share of the total market.

The broader housing market faced pressure as mortgage rates climbed. Data from Freddie Mac shows that 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. This rate increase pushed residential investment back into contraction for the third quarter.

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

The overall decline in construction spending marks a sharp reversal from the prior month's upward revision. The data indicates that private construction projects decreased 2.4% in September after a 2.6% increase in August. The year-over-year drop for total construction spending reached 2.7% in September.