Total construction outlays declined 0.2% during January. Residential spending ended a three-month streak of gains and fell 0.5% during the month. Although single-family spending continued to expand, multifamily and home improvement spending both dropped.
Meanwhile, total nonresidential spending rose modestly as solid gains in infrastructure and data center spending offset weakness in manufacturing, commercial and education projects. While relatively resilient economic growth and the lagged impulse from recent federal spending packages should continue as support factors, elevated interest rates and increased economic policy uncertainty stand to constrain construction activity moving forward.
• Residential construction spending fell 0.5% in January, driving overall construction outlays lower. Residential outlays softened for both public and private construction.
• Waning multifamily construction was the culprit behind the drop in private residential outlays. Private multifamily construction spending slipped 0.7% in January, marking the 14th consecutive monthly decline. This long slide has prompted a 12% year-over-year drop in multifamily outlays as of January.
• The pronounced pullback in multifamily construction has helped to improve the apartment market’s supply-demand imbalance, setting the stage for a modest uptick in apartment construction in 2025. The overall U.S. apartment vacancy rate climbed just 38 bps over 2024 compared to a 117 bps rise in 2023.
• Home improvement outlays also eased in January, slipping by 1.5% over the month. Despite the setback, the current pace of home improvement spending is still 14.3% higher than in January 2024.
• Private single-family construction spending bucked the trend with a 0.6% increase in January. January's rise marked the fifth consecutive increase, reflecting the recent uptrend in single-family permits.
• It is likely that single-family construction spending will lose steam in the months ahead. Home builder confidence pulled back sharply in February, driven by deteriorating perceptions of buyer traffic and sales expectations. Even more, new home sales fell 10.5% in January amid frigid temperatures and still-elevated mortgage rates.
