Construction spending edges higher in September

Wells Fargo Research Team Wells Fargo

Summary

Activity picks up amid residential turnaround

Total construction spending rose 0.1% in September, a monthly gain driven by both the nonresidential and residential categories. The solid rise in residential spending during September reflects the slide in mortgage rates which occurred over the summer in anticipation of less restrictive monetary policy. Although the Federal Reserve cut the federal funds target rate by 50 basis points at the September FOMC meeting, a rebound in mortgage rates over the past several weeks threatens to pour cold water on the fledgling residential recovery.

Meanwhile, total nonresidential spending inched up in September alongside an increase in public expenditures for highway & street and educational projects. However, private outlays declined during the month and the trend in overall nonresidential activity generally remains weak. Easier monetary policy should eventually help bring a turn in nonresidential activity, however, high financing costs and reduced credit access remain as significant headwinds.

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Wells Fargo Research Team

Wells Fargo

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