In a surprising turn, US construction spending decreased in May due to higher mortgage rates dampening single-family homebuilding activity, with the housing sector's recovery expected to be subdued despite improvements in housing supply. According to the Commerce Department's Census Bureau, construction spending fell by 0.1% following an upwardly revised 0.3% increase in April. Economists surveyed by Reuters had predicted a 0.2% rebound in construction spending, following a previously reported 0.1% decline in April. Year-on-year, construction spending saw a 6.4% increase in May. Expenditure on private construction projects dropped by 0.3% in May, following a 0.4% rise the previous month. Investment in residential construction decreased by 0.2% after a strong 0.9% surge in April, with spending on new single-family construction projects declining by 0.7%. Spending on multi-family housing remained unchanged. The rise in mortgage rates during May negatively impacted homebuilder confidence as well as homebuilding and sales activity. Despite this, the housing market has seen notable improvements in supply due to the higher borrowing costs restraining demand, potentially limiting growth in new construction. Inventory of previously owned homes in May reached its highest level since August 2022, while new housing supply hit its peak in over 16 years. Residential investment is expected to have significantly slowed in the second quarter, following robust double-digit growth in the January?March period. In May, spending on private non-residential structures such as factories also fell by 0.3%. Meanwhile, investment in public construction projects saw a 0.5% increase after no change in April, with state and local government spending up by 0.2% and federal government project outlays surging by 3.1%.