The Commerce Department report showed that construction spending fell by 0.3 percent to an annual rate of $2.163 trillion in July, while economists had expected construction spending to come in unchanged.
“Housing is shaping up to be the biggest drag within private fixed investment,” Oxford Economics economist Bernard Yaros said. “We estimate that real residential spending in Q3 will fall by 4.8 percent annualized and subtract 0.2ppt from GDP growth.”
“Private residential and nonresidential investment were both down, lowering our tracking estimate of Q3 GDP growth from 2.3 percent annualized to 2 percent,” the economist reckoned.
“Though our Q3 estimate of nonresidential structures investment is holding its own, the Q4 outlook for this GDP component is increasingly uncertain, given the rise of election-related policy uncertainty,” Yaros added.
Oxford Economics expects the third quarter to be the bottom for housing and has forecast a revival in the market in the fourth quarter.
With the Federal Reserve likely to start cutting interest rates in September, mortgage rates should come down further, unlocking additional sales activity, which will feed through to GDP via broker commissions, Yaros observed.
“Lower rates will improve homebuilder sentiment around prospective buyer traffic and prompt builders to break ground on new single-family units at a time when the homeowner vacancy is near record lows,” the economist said. “Aging in place and work-from-home trends will continue to lend support to home improvement spending.”
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