US Construction Spending in July Extends Decline

Analysts say that most private construction categories struggled to maintain momentum during the first half of the year.

Construction workers build the roof of a house in Alhambra, Calif., on Sept. 23, 2024. Frederic J. Brown/AFP via Getty Images

U.S. construction spending dipped again in July, pulled down by weak investment in private nonresidential and multifamily projects amid high mortgage rates and elevated material costs.

The Commerce Department’s Census Bureau said on Tuesday that total construction outlays slipped by 0.1 percent to a seasonally adjusted annual rate of $2.14 trillion, following a revised 0.4 percent drop in June. Compared with a year earlier, spending was down by 2.8 percent in July.

Private nonresidential construction was a major drag. Investment in structures such as offices and factories fell by 0.5 percent from June, with several biggest categories posting declines. Manufacturing and private power projects each slipped by 0.7 percent, commercial construction fell by 0.9 percent, and office projects edged down by 0.2 percent.

Private residential construction offered only slight relief. Spending rose by 0.1 percent from June, as outlays on new single-family housing ticked up by 0.1 percent. But new multifamily housing projects dropped by 0.4 percent, extending a broader slowdown.

Overall, private construction spending fell by 0.2 percent to $1.62 trillion from June to July and was down by 4.8 percent from a year ago.

Meanwhile, public construction outlays rose by 0.3 percent to $520 billion from June to July, although the two largest public segments, highway and street construction and educational projects, both edged down by 0.1 percent.

The slowdown in multifamily property investment comes as mortgage rates, while easing from earlier highs on expectations that the Federal Reserve will shift course and cut rates, remain elevated. High borrowing costs generally make it more expensive for investors to purchase multifamily properties and discourage new construction.

At the same time, federal data has revealed a broader cooling in demand. The Census Bureau and the Department of Housing and Urban Development showed that the number of unsold, newly constructed homes climbed to 121,000 in July, the highest level since July 2009, when it reached 126,000 in the aftermath of the housing market crash.

Trade associations have warned that the sector faces mounting challenges. According to an analysis by Associated Builders and Contractors (ABC), July marked the third consecutive monthly decline in nonresidential spending, which now stands 2.5 percent below its December 2023 peak.

“With construction materials prices rising rapidly in recent months and set to continue as higher tariff rates go into effect, the recent decline in construction activity is even larger than this data series suggests,” said Anirban Basu, ABC’s chief economist.

Basu noted that no private subsegment has sustained momentum through the first half of this year except for religious construction, which accounts for less than 1 percent of activity, and the power sector, which is expanding thanks to energy-needy data centers.

An earlier analysis of federal data by ABC found that construction material prices rose by 0.4 percent from June to July, leaving nonresidential construction input prices 2.6 percent higher than a year ago.

Copper wire and cable led the hikes, increasing by 5 percent in July and climbing 12.2 percent over the past year. Prices for crude petroleum and unprocessed energy materials also increased, by 1.7 percent and 0.5 percent, respectively, while natural gas prices fell by 2.1 percent.

Highlighting what he called a “particularly concerning pace” of the decline in private nonresidential activity, Basu said one in four ABC members reported project cancellations or interruptions due to tariffs in July, even before steep new import taxes took effect in August.

“With economic uncertainty still elevated, labor shortages reemerging and materials prices rising, it may be a bleak second half of the year for the construction industry,” he said.

The Associated General Contractors of America (AGC) echoed those concerns. Its own survey found that 16 percent of contractors reported projects had been canceled, postponed, or scaled back because of tariffs; 26 percent said projects were affected by shifts in federal policy, including changes to funding, taxes, and regulations; while 45 percent cited delays linked to labor shortages.

“It is difficult for developers to launch new construction projects when they don’t know how much the project will cost or how long it will take to finish,” said Jeffrey D. Shoaf, AGC’s chief executive officer. “Providing greater certainty on tariff rates and taking steps to address severe construction labor shortages will go a long way in stimulating new demand for construction.”