U.S. construction spending fell by 0.3% in June, slightly underperforming economists’ expectations of a 0.2% decline, according to data released by the U.S. Census Bureau. The dip highlights ongoing turbulence in the construction sector, which remains sensitive to interest rate fluctuations and shifting demand.

The report showed that the monthly drop was driven primarily by a 0.8% decline in private residential construction, as elevated mortgage rates and affordability concerns continued to weigh on new homebuilding activity. Year-over-year, spending in the housing segment is down 3.5%, suggesting sustained weakness in the market.

“Mortgage rates have remained elevated as tariffs on imported goods have raised economic uncertainty, prompting the Federal Reserve to pause its interest rate cutting cycle,” the report noted.

On the nonresidential side, overall spending remained flat, though manufacturing-related construction is now more than 5% below its August 2024 peak. Data center development remained a bright spot, posting a 1% increase in June.

Meanwhile, public construction spending offered a modest boost, rising 0.5%. However, analysts noted that state and local government projects continue to face funding challenges, while delays in federal disbursement are stalling broader infrastructure initiatives.

A National Association of Home Builders survey in June revealed sagging confidence among single-family builders, calling current sentiment the lowest in two and a half years. “It forecast a decline in single-family starts this year,” the report stated.

The June numbers underscore deepening concerns about a fragmented construction market. With affordability concerns pulling buyers away from homeownership and into rentals, and state-level infrastructure projects often slow to start, the sector is experiencing uneven performance.

Investment implications are already emerging across markets. Treasury yields fell on the news, with the 10-year dropping to 4.65% as expectations of Fed rate hikes ease. Meanwhile, construction-linked equities like Caterpillar and Beazer Homes saw declines, reflecting caution among investors.

Looking ahead, analysts say attention will turn to August’s construction spending report, which could provide clearer insight into the health of both the residential and commercial building markets. Until then, investors are advised to watch for signs of resolution on labor availability, supply chain disruptions, and fiscal policy clarity, all of which continue to constrain growth in the sector.

Originally reported by Epic Events in AInvest.