US construction spending falls; private outlays near 2-1/2-year low

U.S. construction spending unexpectedly fell in May as investment in private construction projects dropped to its lowest level in nearly 2-1/2 years.

The Commerce Department said on Monday construction spending declined 0.8 percent, the biggest drop since last November. Data for April was revised to show construction outlays rising 0.4 percent instead of being unchanged as previously reported.

Economists polled by Reuters had forecast construction spending would rise 0.1 percent in May. Construction spending fell 2.3 percent on a year-on-year basis in May.

Weak construction spending was the latest indication that economic growth slowed in the second quarter after getting a temporary boost from exports and an accumulation of inventory.

Consumer spending is rising moderately, while the pace of job and wage growth has slowed. In addition, manufacturing and the housing market are struggling and the goods trade deficit widened in May.

Construction spending surged in the first quarter, boosted by increased investment in roads and highways by state and local governments.

Spending on private construction projects dropped 0.7 percent in May to the lowest level since January 2017. That followed a 1.0 percent decline in the prior month. Private construction outlays also fell in March.

Investment in private residential projects fell 0.6 percent in May to its weakest level since December 2016, after a 0.6 percent decrease in April. Private residential construction outlays have now declined for five straight months.

Homebuilding has remained weak even as mortgage rates have dropped sharply from last year's high levels. Spending on residential construction has contracted for five straight quarters.

Spending on private nonresidential structures, which includes manufacturing and power plants, decreased 0.9 percent in May after plunging 1.4 percent in the prior month.

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In May, investment in public construction projects fell 0.9 percent after surging 4.5 percent in April. Spending on state and local government construction projects slipped 0.6 percent after jumping 4.3 percent in April. Outlays on federal government construction projects tumbled 5.2 percent in May after rising 7.3 percent in the prior month.

(Reporting by Lucia Mutikani Editing by Paul Simao)