In January, both U.S. companies and the government reduced construction projects nationwide due to high interest rates, leading to a 0.2% decrease in construction spending to $2.1 trillion, according to the Commerce Department’s report on Friday.

Initial Reduction in Construction Spending Since December 2022

This decline marks the first decrease in construction spending since December 2022, falling short of the 0.3% increase that economists had anticipated on Wall Street.

Impact of Construction Spending on Economic Activity

Construction spending reflects the investment by both the government and private companies in projects like housing and highways, directly influencing the level of economic activity. Revised figures for December show an increase from an initial 0.9% to 1.1%.

Year-Over-Year Growth in Construction Spending

Despite the recent dip, construction spending has seen a significant 11.7% growth over the past year, with private residential construction experiencing a slight increase of 0.2% in January. Single-family construction rose by 0.6%, while multifamily construction saw a slight drop of 0.4%. On the other hand, public residential construction spending recorded a 1.9% increase.

Investors need to closely monitor the construction industry as it serves as a significant indicator of overall economic health and activity.

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