Construction spending slipped in January

Summary

Construction spending weakened to start 2024

Total construction spending declined 0.2% during January. The drop appears partially owed to harsh winter weather that much of the nation experienced during the month. That noted, January's weakness was concentrated in the nonresidential category. Although manufacturing project spending once again rose, educational, retail, warehouse and lodging construction all declined notably. Considering commercial construction starts have downshifted sharply over the past year alongside uncertain demand prospects, higher interest rates and reduced credit access, further declines in nonresidential spending in the months ahead would not be surprising. By contrast, residential spending rose solidly in January thanks in large part to another gain in single-family outlays. Home builders look to be increasingly encouraged by low resale supply as well as the prospect for a soft landing and lower financing costs on the horizon. Meanwhile, the recent downturn in multifamily starts now appears to be weighing on spending.

Single-family continues to carry residential spending

• Total construction surprised to the downside, falling 0.2% in January as winter weather suppressed activity across the country. The monthly slowdown stemmed from weaker nonresidential and multifamily outlays.

• Residential outlays ticked up 0.2%, driven entirely by a pick-up in single-family spending which rose 0.6% over the month. Single-family spending has improved for nine consecutive months as home builders look to fill the home supply gap left by a tight resale market.

• Multifamily spending slipped 0.6%, the fourth decline in the past five months. Multifamily construction has pulled back in the face of rising apartment vacancy rates and a near-record number of apartment units under construction. We suspect multifamily outlays will continue to soften going forward as the count of new projects dwindles and builders work through and complete existing projects.

• Home improvement outlays were essentially flat over the month but are down 3.7% year-over-year. Higher interest rates has chilled spending on home renovation. Reflected in consumer spending, retail sales for building and gardening materials are down 8.3% year-over-year as of January.

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