Falling lumber prices boosted construction spending in July

Construction spending picked up in July, as material costs declined from all-time highs and employment in the sector grew, according to the U.S. Census Bureau.

Seasonally adjusted construction dollar volume reached $1.569 trillion for the month, marking an increase of 0.3% or $5.4 billion from June’s $1.563 trillion and 9% or $129.2 billion from July 2020’s $1.44 trillion.

The private sector accounted for a seasonally adjusted $1.231 trillion, up 0.3% monthly from $1.228 trillion and 13.5% annually from $1.084 trillion. Publicly funded construction totaled $337.8 billion in July, 0.7% higher than $335.6 billion month-over-month while falling 5.1% from $356 billion year-over-year.

Residential spending rose 0.5% from June and 27% from July 2020 to an adjusted annual rate of $782.1 billion. Publicly backed residential volume totaled $9.17 billion, up from $9.07 billion the month before but a drop from $9.55 billion one year earlier.

Privately funded residential spend grew to $773 billion in July, up monthly from $768.9 billion and annually from $608.6 billion. Single-family builds totaled $416.3 billion, up from $412.7 billion in June and from $283.1 billion in July 2020. Meanwhile, multifamily edged down monthly to $98.78 billion from $98.82 billion but jumped from $86 billion a year ago.

Residential construction gained 8,300 jobs in July, according to the Bureau of Labor Statistics. August came with 17,400 more, an indicator that spending could continue to ramp up.

“These strong job gains will likely help builders tackle their current backlogs of orders, which we believe should help ease supply constraints in this sector,” Fannie Mae Deputy Chief Economist Mark Palim said in a statement.

Lumber prices leveling off through the summer also helped drive the construction increase. After hitting a record peak of $1,670.50 per thousand board feet on May 7, it ended June at $737.40 and descended to $621.20 on the last day of July.

Increased homebuilding activity may help to alleviate the ongoing inventory crunch and aligns with the Biden administration’s new mandate of adding 100,000 affordable housing units in the next three years. Additionally, the Federal Housing Finance Agency increased Fannie Mae and Freddie Mac’s annual low-income housing tax credit limit to $850 million from $500 million.

"Mortgage Banker Association strongly supports the administration’s efforts to increase the housing supply by encouraging the construction and rehabilitation of affordable apartments and homes for renters and first-time buyers,” MBA President and CEO Bob Broeksmit said in a statement following the announcements. "The lack of supply is a huge problem, and HUD and FHFA should do what they can administratively while Congress considers more significant initiatives.”