WASHINGTON, Jan 21 (Reuters) - U.S. construction spending increased more than expected in October, likely reflecting home renovations, with activity elsewhere weak.
The Commerce Department's Census Bureau said on Wednesday that construction spending rose 0.5% after falling 0.6% in September. Economists polled by Reuters had forecast construction spending gaining 0.1% in October. Spending dropped 1.0% year-on-year in October.
The data was delayed by the 43-day government shutdown. Spending on private
construction projects increased 0.6% in October after declining 0.9% in September.
Investment in residential construction shot up 1.3% after slumping 1.4% in September. That was despite a 1.3% drop in spending on new single-family housing projects. Spending on multi-family housing units, which account for a small share of the housing market, slipped 0.2%.
With both single- and multi-family housing projects falling, the increase in residential outlays was likely because of renovations. Homebuilding has been hamstrung by higher mortgage rates, more expensive building materials because of tariffs on imports as well as labor shortages.
There is also an oversupply of new homes on the market, which is deterring builders from breaking ground on new housing projects. But mortgage rates have declined in recent weeks after the Trump administration began purchases of mortgage-backed securities, which could stimulate home purchases and reduce new housing inventory.
Rising long-term U.S. bond yields amid renewed trade tensions between Washington and Europe could, however, limit declines. Mortgage rates track the 10-year U.S. Treasury yield, which has risen after threats by President Donald Trump to slap tariffs on nations that do not support his bid to acquire Greenland. Residential investment has been a drag on gross domestic product for three straight quarters.
Investment in private nonresidential structures like offices and factories fell 0.2% in October. Spending on nonresidential structures has contracted for seven consecutive quarters, but could get some support from the construction of data centers amid an artificial intelligence spending boom.
Investment in public construction projects edged up 0.1% after increasing 0.4% in September.
State and local government construction spending rose 0.3% in October while outlays on federal government projects decreased 2.0%.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
