US construction spending exceeds expectations in February

Construction spending rose more than expected in February, boosted by a discreet drop in mortgage rates, which was a rebound in this index from the previous month's decline, according to a report.

The data suggests that the residential sector continues to drive construction activity despite high financing costs and lingering affordability issues.

The Commerce Department's Census Bureau announced this week that total construction spending rose 0.7% in February, reaching a seasonally adjusted annual rate of $2.20 trillion. This followed a 0.5% decline in January, revised from the previous estimate of a 0.2% decline.

Private residential construction spending rose 1.3%, with a 1% increase in single-family construction, reaching an annual rate of $440.2 billion. Multifamily construction was unchanged and remains down 11% from a year earlier, reflecting persistent weakness in residential construction.

However investment in private nonresidential structures, such as offices and factories, rose 0.4%, and public construction rose 0.2%.

Highway and street projects registered a 1.2 % increase.

Despite tariffs, numbers grow

Although the Donald Trump administration has ordered a new trade study that could pile more tariffs on imported lumber, which would be in addition to existing duties on Canadian softwood lumber, which is used in construction, furniture manufacturing and paper production, the numbers reached higher than expected.

Trump has also increased tariffs on Chinese goods to 20% and imposed tariffs on steel and aluminum.

The increase in single-family residence construction goes hand-in-hand with the persistent demand and limited supply of existing homes. While high mortgage rates continue to affect affordability, builders have benefited from steady demand and a moderation or decline in input costs.

In February, building materials fell 0.1% from January and were up only 1.6% from a year earlier, according to the Labor Department's producer price index.

Concerns in the private construction sector

"The combination of high interest rates, tight credit conditions and unprecedented uncertainty surrounding trade policy will continue to weigh on private sector construction in the months ahead," said Chief economist at Associated Builders and Contractors (ABC), Anirban Basu.

Overall, private construction rose 0.9%, compared with a modest 0.2% increase in government spending, underscoring the large role of the private sector as a driver of growth.