US Construction Spending Stagnates Amid Rising Mortgage Costs

Private construction projects remained flat last month, despite a modest 0.3% uptick in residential renovations. The sector continues to suffer from the cooling housing market, where spending on new single-family homes dropped 0.1% in May, marking a 4.0% decrease compared to the same period last year. Freddie Mac reports that 30-year fixed-rate mortgages now average 6.49%, a direct consequence of volatile energy prices and inflation linked to the ongoing conflict between Israel and Iran.

Nonresidential investment also faced headwinds, retreating 0.3% as factory construction plummeted 1.3%. Even the rapid development of artificial intelligence infrastructure could not prevent a 0.1% decline in power plant spending. Conversely, public sector projects provided a rare bright spot, rising 0.5% in May. Federal outlays surged 1.3%, driven largely by the expansion of detention facilities as part of current immigration enforcement efforts, while state and local government spending climbed 0.4%.