Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Construction Remains Restricted by Rates, Though Prospects Are BrighteningConstruction spending continues to lose momentum as high interest rates weigh on activity. Total construction spending dropped 0.3% during June, with declines registered in both the residential and nonresidential categories. Overall construction outlays were still up 6.2% on a year-to-year basis, however June marked the second straight monthly dip. Another soft reading on the forward-looking Architecture Billings Index during June provides evidence that construction activity is likely to remain weak in the near term.
Looking further ahead, prospects for construction are beginning to brighten. The Federal Reserve did not make any substantive changes to monetary policy at the July FOMC meeting, yet the Committee laid the groundwork for interest rate cuts later this year, likely beginning at the next meeting in September. Furthermore, although broadly turning down, not every segment of construction is on the decline. The Census recently published new estimates of data center construction spending, which has expanded rapidly over the past several years and is not showing any meaningful signs of slowing as firms race to keep up with the Artificial Intelligence (AI) revolution.
Residential Building Stuck in a Rut
- Overall construction spending dipped 0.3% in June, reflecting a broad weakening in both residential and nonresidential outlays.
- Residential construction suffered its third decline in the last four months. Although recent weakness has been shared across single-family and multifamily construction, June’s 0.4% decline was entirely owed to a pullback in single-family building.