Construction Spending Surpasses Expectations in April

The U.S. experienced a surprising increase in construction spending in April, largely due to growth in AI-related sectors and a boost in single-family home building.

According to the Census Bureau of the Commerce Department, construction spending in March increased by 0.4%, which is double what analysts predicted. Initially, a 0.6% rise was anticipated, but this was later adjusted down to 0.2%.

In the private sector, spending on single-family homes climbed by 1.4%, marking two consecutive months of growth. Nevertheless, when compared to the previous year, there’s a decline of 2.9%. Elevated mortgage rates, attributed to ongoing conflicts in the Middle East, are putting a damper on the residential real estate market. So far this year, spending sits 5.6 percentage points lower than last year’s pace.

Additionally, investment in office construction, which includes AI data centers, saw a 1% increase, up by 7.5% from a year ago. Office construction expenditures in the initial four months of this year have risen by 8.3% compared to last year. Notably, spending on data center construction alone has surged over 26% year-on-year.

Moreover, spending on power equipment—including aspects like power generation and the storage and distribution of crude oil—rose by 0.6% in April. Compared to April of last year, this category saw a 6% increase, and year-to-date, it has gone up by 5.6%.

It’s interesting to note that these two categories, electricity and office construction, contributed to roughly one-third of the overall rise in private sector spending.

On the downside, the manufacturing sector showed the most significant decline in spending during May, with a decrease of 1.2%. Year-over-year, this sector is down a substantial 18.5%, and for the year-to-date, the decline stands at 17.9%. Despite a surge in construction spending in manufacturing post-pandemic, normalizations due to inflation and generous subsidies from the CHIPS Act and green energy initiatives from the Biden administration have led to this drop. Still, it’s worth mentioning that manufacturing construction expenditures are still more than double what they were before the pandemic.

On the government front, spending saw a 0.4% increase, driven by heightened investment in roads, public safety structures, and educational facilities.