• Construction spending declined for the second consecutive month, falling 0.1% in July and sliding 2.9% year-over-year.
  • The sector is weighed down by high interest rates, elevated input costs, and persistent economic uncertainty.
  • Pockets of strength in data center and transportation construction are offset by sharp declines in manufacturing and office projects.

US construction spending continued its sluggish trajectory in July, dipping 0.1% month-over-month to match analyst estimates precisely. The latest data from the Commerce Department confirms a sector under persistent strain from elevated borrowing costs, high material prices, and wavering confidence.

The decline follows a steeper 0.4% drop in June, bringing the annual slide to 2.9%. The weakness was broadly based, though private residential construction remained a particular sore spot as high mortgage rates continue to suppress demand for single-family homes. Multifamily construction was flat, offering little offset.

“We’re seeing a clear bifurcation in the market,” said one analyst who reviewed the data. “While sectors like data centers are booming—up an astounding 330% over four years—traditional mainstays like offices and manufacturing plants are in a pronounced downturn.”

Indeed, private nonresidential activity was soft, with office construction posting notable declines. The much-heralded boom in manufacturing plant construction, initially sparked by federal incentives like the CHIPS and Inflation Reduction Acts, appears to be losing steam. This is exacerbating concerns about the sector's near-term momentum, especially as federal infrastructure outlays dropped sharply in June.

Contractors report that project delays are becoming more common as higher input and labor costs squeeze margins. Recent tariffs have further exacerbated price hikes for essential materials like steel and lumber. “Every bid is a gamble right now,” a project manager at a mid-sized firm said, requesting anonymity to speak freely. “You lock in prices today, but who knows what the landscape will look like in six months?”

Despite the gloomy headline numbers, there are pockets of resilience. Transportation construction and the red-hot data center segment continue to see robust investment, according to industry sources. Furthermore, the odds of a Federal Reserve rate cut have risen following recent weak jobs data, which could eventually improve credit conditions for new projects.

The overall outlook, however, remains cautious. The American Institute of Architects’ consensus forecast predicts nonresidential building spending will grow a meager 1.7% in 2025, barely keeping pace with inflationary pressures. For households, the persistent decline in residential construction continues to limit housing inventory, compounding affordability challenges across the market.

Attempts to reach trade association officials for immediate comment were not immediately successful late Monday.