Construction spending drops in April

Summary

Residential and nonresidential outlays fall in april

Total construction spending declined 0.4% in April, the third straight monthly drop. The pullback in total overall outlays largely reflects the high interest rate environment, which continues to cut into residential demand and stand in the way of new nonresidential projects getting underway. Uncertainty regarding changes to trade policy and the potential economic impacts also weighed on total spending. There is now more visibility in regard to tariffs, and concerns of an acute contraction in economic activity have lessened, which should help bolster the project pipeline in the months ahead. That said, the improved outlook means the Federal Reserve will not be in a hurry to reduce the federal funds target rate. As such, elevated financing costs should remain a constraint on activity moving forward.

Residential construction tapering

• Total residential outlays softened 0.9% in April, the third consecutive decline.
• Residential construction spending was 4.7% below the pace one year ago. April's $904.6 billion pace of residential outlays was its slowest in seven months.
• Softening single-family construction is a principal driver. Private single-family outlays declined 1.1% in April, the first deterioration in eight months. This trend shift reflects increased economic uncertainty and a slump in builder confidence. Back-to-back drops in single-family permits in March in April foretell additional weakness over the coming months.
• Poor single-family housing market affordability conditions are supporting multifamily construction. Private apartment outlays slipped 0.1% in April following two consecutive upturns. Through the noise, apartment construction has essentially moved sideways over the past few months, an improvement over the prolonged downshift that started in mid-2023. The stabilization in multifamily construction echoes a stabilization in vacancy rates, which have started to improve as high mortgage rates discourage renters from buying homes.
• Home improvement spending declined 0.8% in April and is now running 5.5% below the pace from one year ago. Although high mortgage rates have encouraged home improvement over home buying, higher materials prices and growing economic uncertainty related to tariffs may be causing homeowners to reevaluate high-priced improvement plans.

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