Washington (Reuters) - In October, U.S. construction spending witnessed a notable increase that exceeded expectations. This growth was primarily driven by the flourishing single-family homebuilding sector. The Commerce Department's Census Bureau revealed on Monday that construction spending rose by 0.4% following an unaltered 0.1% gain in September. Economists surveyed by Reuters had anticipated a construction spending climb of 0.2%. On a year-on-year basis, construction spending advanced by a substantial 5.0% in October.

Private Construction Projects: A Steady Increase

Spending on private construction projects demonstrated a healthy growth of 0.7%. Residential construction investment witnessed a significant jump of 1.5%, with outlays on new single-family projects rising by 0.8%. Despite mortgage rates reversing their downward trend that had pushed them to a more than 1-1/2-year low of 6.08% at the end of September after the Federal Reserve started cutting interest rates, the increase in construction spending remained robust. The average rate on a 30-year fixed-rate mortgage surged to 6.72% by the end of October, in line with the rise in 10-year U.S. Treasury yields. This upward movement was influenced by strong domestic data, which hinted at a slower pace of rate cuts from the U.S. central bank.New homes inventory for sale is currently at levels last seen in early 2008. This limited the potential for further gains in single-family housing construction. However, outlays on multi-family housing units still managed to rise by 0.2%. Additionally, spending on home renovations also witnessed an increase, indicating a continued demand for home improvement activities.

Residential Spending: A Two-Quarter Drag on the Economy

Residential spending, which encompasses homebuilding, has been a significant drag on the economy for the past two consecutive quarters. This trend highlights the importance of the housing sector in influencing overall economic growth. While there have been challenges in certain areas such as private non-residential structures like offices and factories, the performance of residential construction remains a crucial factor to monitor.Investment in private non-residential structures like offices and factories experienced a decline of 0.3%. This was mainly due to decreases in commercial, healthcare, educational, as well as amusement and recreation facilities. These sectors faced headwinds in terms of investment, which could have implications for the overall economic landscape.

Public Construction Projects: A Slight Downturn

In October, spending on public construction projects dropped by 0.5%. State and local government spending decreased by 0.6%, more than offsetting a 0.3% gain in outlays on federal government projects. This indicates a mixed picture in the public construction sector, with different levels of government facing varying challenges and opportunities. The performance of public construction projects will likely have an impact on local economies and infrastructure development.Overall, the October data on U.S. construction spending provides valuable insights into the current state of the construction industry. The interplay between different sectors and factors such as mortgage rates and domestic data will continue to shape the future trajectory of construction spending and its impact on the economy.