US construction spending drops 1.7 per cent in March

WASHINGTON — U.S. construction spending dropped 1.7 per cent in March, the biggest setback in 11 months, with weakness in a number of sectors including the biggest plunge in home building in nine years.

The March decline was the first monthly drop since last July and the biggest contraction since a 1.8 per cent fall in April 2017, the Commerce Department reported Tuesday. Spending on residential construction was down 3.5 per cent, the worst showing since a 4.2 per cent decline in April 2009.

Economists are forecasting that construction spending will contribute to overall growth this year even though interest rates are rising. Home mortgage rates are now at their highest levels in four years and the Federal Reserve, which is meeting this week, is expected to keep gradually raising rates this year to guard against inflation pressures getting out of hand.

The Fed, which raised rates in March, will likely leave its benchmark rate unchanged this week but raise rates again in June.

Spending on nonresidential projects fell 0.4 per cent, with office buildings and commercial projects such as shopping centres both down. Spending on government projects was unchanged from the previous month. A 2.2 per cent rise in spending by the federal government offset a 0.3 per cent dip in state and local projects.

In the construction report, the 3.5 per cent drop in residential spending reflected a 2.7 per cent fall in spending on apartment construction and a smaller 0.4 per cent decline in single-family home construction. The decline in nonresidential construction reflected weakness in spending on construction of offices, shopping centres, hotels, health care facilities and factories.

Total construction spending had been steadily rising since last August. Even with the March drop, spending at an annual rate of $1.28 trillion is close to record highs and 3.6 per cent above where it was a year ago.