Construction Spending Rises Much More Than Expected as Housing Rebounds

Spending on construction projects in the U.S. jumped by more than analysts expected in May, with private sector spending to build single-family homes rising rapidly.

The Census Bureau said on Monday that construction spending rose 0.9 percent in May compared with April to a seasonally adjusted annual pace of $1.93 trillion. Construction spending in the first five months of 2023 is up 2.9 percent compared with last year.

Economists had forecast a smaller rise of 0.5 percent.

New single-family home construction spending rose 1.7 percent, giving more support to the idea that the housing market may have bottomed earlier this year and begun to recover.

“The lack of existing homes on the market, resilient demand for homes, and falling construction costs is driving homebuilders to start to resume construction,” Bank of America said in a note to clients published prior to the release of the May results.

The rise in interest rates on home loans over the past year and a half has discouraged homeowners from selling their homes with lower fixed rates. This has led to a low level of existing homes on the market.

Construction spending on single-family homes fell in the first four months of this year and is down 23.7 percent in the first five months compared with last year.

Construction spending on multifamily projects, which run around a third of spending on the single-family construction, ticked down in May but remains well above last year’s levels. Year-to-date multifamily construction is up 20.2 percent compared with the period a year ago.

Private nonresidential construction spending fell 0.3 percent in May but so far this year it is up 20.3 percent over the first five months of 2022. Spending on offices and hotels rose. Spending on manufacturing plants jumped one percent and is up by 72.6 percent year to date.

Government spending rose 0.1 percent, although spending on highway and street construction—by far the largest category of public construction—fell 0.4 percent. Spending on educational facilities, the second largest category, was flat for the month.