Nonresidential a Drag as Residential Continues to Rise
Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Higher Interest Rates Begin to Weigh More Heavily on Construction
Total construction spending declined 0.3% during February, the second straight monthly drop. A solid increase in residential outlays was not enough to offset a fall in nonresidential spending. Most major categories of nonresidential spending slipped during the month, reflecting the lagged impacts of higher interest rates and tighter lending standards. By contrast, single-family outlays continue to climb as builders boost production against a backdrop of low resale supply and the ability to offset higher financing costs with lower prices and other incentives.
Single-Family Driving Residential Spending
- Total construction spending fell 0.3% during February. Looking under the hood, the monthly decline largely was the result of a 1.0% drop in total nonresidential spending, as both the private and public categories weakened.
- Meanwhile, residential spending rose 0.7%, the third straight monthly gain. The strengthening trend in residential mostly is the result of a pick-up in single-family construction. Although mortgage rates have risen sharply over the past several years, the new home market has held up fairly well thanks to home builder pricing incentives and a relative abundance of inventory.