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Construction spending flattened after a burst of activity at year-end

The single-family home market will bring a boost to construction activity in early 2024, once rates decline.


Construction spending dipped 0.1% in January from upwardly revised December figures; November data were revised up as well. Residential and public construction spending pulled down activity for the month. Compared to January of last year, spending was up 5.7%, the slowest annual growth since 2021. A warm January should have boosted activity, which means construction was potentially worse than it appeared; revisions in the coming months are likely. A drop in lumber and steel prices partially contributed to the slowdown in spending. However, inflation remains a concern in the construction sector. Diesel, asphalt and cement prices popped during the month, with a ramp up in public infrastructure spending. Builders will continue to face supply challenges in 2023 as demand for projects from the public sector keeps a floor under prices.

Private residential construction spending fell 0.6% in January, marking its first annual drop since 2019. The single-family market continued to drag on growth with a 1.7% drop from December to January. Single-family construction has been faltering since the middle of 2022 in response to rising interest rates and record-high prices hitting demand. Builders are luring buyers back with price cuts and mortgage rate buydowns – a product popular in the subprime crisis to lower initial monthly payments. They hope to draw down excess inventories in the newly built market.

Multifamily construction activity has been slowing but still marked a 0.4% monthly increase in January. With many more multifamily structures (with five units or more) scheduled to come on line this year, rents are expected to drop further as supply is absorbed. Construction activity is expected to remain muted into the end of the year while interest rates remain high and excess supply is sold off.

Builders are luring buyers back with price cuts and mortgage rate buydowns.

Private nonresidential construction spending grew 0.9% in January after November and December were revised significantly higher. Growth was broad-based, apart from commercial, healthcare, educational and recreation projects. Restaurants, retail and warehouse projects fell during the month, but activity remains higher than a year ago. Office spending eked out a gain in the month as well, even as the return to offices full-time appears unlikely.

Public construction spending dipped 0.6% in January. The majority of spending occurs at the state and local levels, which were down 1.4% in January; spending was down across the board after peaking in December. Federal spending was up 8.6%. More spending is expected when infrastructure projects ramp up this year. 

Bottom Line:

Construction spending disappointed in January but strong revisions to November and December suggest activity at the end of 2022 was more robust than assumed. That brings more momentum into 2023 and potentially pushes recession concerns even further into 2023. A resumption of activity in the single-family market once interest rates are lower will bring a boost to construction activity in early 2024.  

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Meet our team

Image of Yelena Maleyev
Yelena Maleyev
Senior Economist, KPMG Economics, KPMG US

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