Solid Growth in February, but Tariff Headwinds Beginning to Swirl
Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Uncertainty Looms Over the Outlook
Total construction spending improved 0.7% in February. Although gains were broad-based across major categories, an increase in residential spending drove the overall rise. Despite high interest rates, a structural shortfall of housing continues to support new single-family and home improvement outlays. On the nonresidential side of the ledger, increases in infrastructure, industrial and institutional project spending helped offset a drag from commercial development.
February’s construction data were broadly positive, however uncertainty regarding trade policy has reduced visibility for the path ahead. During February, the American Institute of Architects (AIA) reported the first decline in new project inquiries since the throes of the pandemic in 2020. The drop reflects a building stack of uncertainty related to new tariffs, monetary policy and economic growth and suggests a weaker pace of construction spending moving forward.
Residential Construction on the Rise
- February’s 0.7% rise in overall construction spending primarily was driven by higher home improvement and single-family outlays.
- Private home improvement spending rose 2.0% in February, partially making up for declines in December and January.