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U.S. construction spending in August saw an unexpected decline, primarily due to a drop in outlays for single-family housing projects. Despite this, lower borrowing costs could potentially stimulate construction activity in the coming months. The Commerce Department reported a 0.1% decrease in construction spending, following a revised 0.5% drop in July. Economists had predicted a 0.1% increase. On a year-on-year basis, construction spending rose by 4.1% in August.

Private construction projects saw a 0.2% decrease, with residential construction falling by 0.3%. Specifically, spending on new single-family projects plummeted by 1.5%. The oversupply of new homes and buyers waiting for lower mortgage rates may limit the impact of declining borrowing costs in the short term. The Federal Reserve’s recent interest rate cuts are aimed at boosting economic activity. Mortgage rates are currently at two-year lows, while the inventory of new homes is at levels not seen since early 2008.

Spending on multi-family housing units declined by 0.4%, but there was an increase in spending on home renovations. Investment in private non-residential structures like offices and factories dipped by 0.1%. Public construction projects, on the other hand, saw a 0.3% increase, with state, local, and federal government spending all showing positive growth.

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