As Rising Interest Rates and Material Prices Weigh on Activity

• The value of construction put in place in the U.S. fell 1.1% in June from May.
• Total private construction spending in June was 1.3% below the revised May estimate.
• Public construction spending fell 0.5% in June from May.
• Rising interest rates, tangled supply chains and labor shortages are all headwinds facing the construction sector.

Construction spending in June registered at $1.76 trillion, a 1.1% decrease from the upwardly-revised May estimate of $1.78 trillion, according to the Census Bureau’s release. This was against PNC’s expectation for a 0.4% gain and consensus expectations for a 0.1% increase. June’s decline was the first decline this year and the biggest drop since April 2020.

Total private construction fell 1.3% on the month. Private residential construction spending was down 1.6% in June from May, while private nonresidential spending fell 0.5%. Total residential construction spending was up 15.4% in June from a year ago while nonresidential spending was up by a small 1.2%.

New multi-family construction spending was up 0.4% in June from May and was down 0.1% from June 2021. With declining affordability for single-family homes and rising rents, multifamily construction spending growth should continue in the near term although rising interest rates, labor shortages, and tangled supply chains remain headwinds. Multifamily construction starts in June were up 15.6% from a year ago.

With today’s release, the total value of construction spending put in place fell 0.3% in the second quarter after rising 5.2% in the first quarter. Looking ahead, rising interest rates and supply chain turmoil will weigh on construction spending in the second half of the year. With slowing housing demand, real residential construction activity will decline while nonresidential construction spending will lag due to big questions about the future of remote work and brick-and-mortar retail.

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