U.S. construction spending dives in June on single-family housing weakness

U.S. construction spending tumbled in June as outlays on single-family homebuilding declined sharply amid rising mortgage rates.

The Commerce Department said on Monday that construction spending dropped 1.1% in June after gaining 0.1% in May. Economists polled by Reuters had forecast construction spending would rise 0.1%.

Construction spending increased 8.3% on a year-on-year basis in June. Spending on private construction projects decreased 1.3% after increasing 0.2% in May.

Investment in residential construction dropped 1.6%, with spending on single-family projects plunging 3.1%. Outlays on multi-family housing projects increased 0.4%.

The housing market is cooling as higher mortgage rates reduce affordability for buyers.

Residential spending contracted at its steepest pace in two years in the second quarter. That contributed to gross domestic product declining at an annualized rate of 0.9% last quarter after shrinking at a 1.6% pace in the January-March quarter.

The Federal Reserve last week raised its policy rate by another three-quarters of a percentage point. It has now hiked that rate by 225 basis points since March.

Investment in private non-residential structures like gas and oil well drilling fell 0.5% in June. Outlays on non-residential structures have declined for five straight quarters.

Spending on public construction projects dropped 0.5% after falling 0.7% in May. Investment in state and local government construction projects slipped 0.6%, while federal government spending increased 1.2%.