US construction spending inches up in May, but homebuilding weak

WASHINGTON, July 1 (Reuters) - U.S. ‌construction spending ​edged ​up in May as higher mortgage rates because of the Middle East conflict constrained homebuilding.

The Commerce Department's Census ‌Bureau said on Wednesday that construction spending rose 0.1% after ⁠a downwardly revised 0.3% increase in April. Economists polled by Reuters had ‌forecast construction spending gaining 0.1% ‌after a previously reported 0.4% increase in April.

Construction spending fell 1.5% on a year-over-year basis in May. Spending on private ​construction projects was unchanged after rising 0.3% in the prior month. Investment in residential construction increased 0.3%, reflecting renovations.

Spending on ⁠new single-family housing projects dropped 0.1%. It tumbled 4.0% year-on-year in May.

The U.S.-Israeli war with ​Iran boosted oil prices, driving up inflation and mortgage rates. The average rate on the popular 30-year fixed-rate ​mortgage has increased by about 50 ‌basis points since the conflict started at the end of February, data from mortgage finance agency Freddie ⁠Mac showed.

It averaged 6.49% last week. Spending on multi-family housing units, which account for a small share of the housing market, dipped 0.1% ⁠in May.

Investment in private nonresidential structures such as power plants and factories declined ​0.3% in May. Spending on factory construction dropped 1.3%, while outlays on power plants eased 0.1%, despite a surge in the construction of data centers ‌to support artificial intelligence.

Investment in public construction projects increased 0.5% after a similar gain in April. ‌State and local government construction spending rose 0.4% in May while ⁠outlays on federal government projects ‌jumped 1.3%, likely boosted ​by the building of detention centers as part of an immigration crackdown.

(Reporting by Lucia Mutikani; Editing by ‌Andrea Ricci)

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