U.S. construction spending is showing growing signs of stress, with July marking the third consecutive month of decline. Nonresidential construction dipped 0.2% to a seasonally adjusted annual rate of $1.24 trillion, according to an Associated Builders and Contractors (ABC) analysis of U.S. Census Bureau data.
Private nonresidential spending slipped 0.5% in July, while public outlays provided a modest boost with a 0.3% gain. The downturn was spread across seven of 16 nonresidential categories, including significant pullbacks in manufacturing and commercial projects.
“It may be a bleak second half of the year for the construction industry,” said Anirban Basu, ABC’s chief economist, noting that economic headwinds are increasingly weighing down activity.
Basu cautioned that the actual slowdown could be even sharper than the top-line data shows.
“The recent decline in construction activity is even larger than this data series suggests,” he said. “With the exception of the religious category, which represents less than 1% of private nonresidential construction activity, and the power category, which is surging due to data centers and their considerable energy needs, no private subsegment has retained momentum through the first half of 2025.”
Contractors are struggling with a combination of rising costs and workforce shortages. The Associated General Contractors of America (AGC) reported that about 16% of firms had projects canceled, postponed, or scaled back due to tariff-related impacts. Nearly half—45%—said labor shortages were delaying work, while another 26% cited policy changes around federal funding, taxes, and regulations as reasons for reduced demand.
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“It is difficult for developers to launch new construction projects when they don’t know how much the project will cost or how long it will take to finish,” said Jeffrey Shoaf, CEO of AGC. “Providing greater certainty on tariff rates and taking steps to address severe construction labor shortages will go a long way in stimulating new demand for construction.”
One bright spot remains public nonresidential construction, which has climbed 3.1% over the past 12 months, bolstered by infrastructure investments. By contrast, private nonresidential spending dropped 3.7% year-over-year, reflecting the uneven state of the market.
Basu stressed the troubling pace of the decline: “Private nonresidential activity has declined at a particularly concerning pace over the past several months.”
The commercial sector was hit hardest in July, down 0.8%, followed closely by a 0.7% drop in manufacturing construction. These trends suggest further weakening could lie ahead.
“Nearly one in four ABC members reported having a project interrupted or canceled due to tariffs in July, according to ABC’s Construction Backlog Indicator survey,” Basu said. “And that predates the particularly large import tax increases put into effect in early August.”
The deepening slide in construction spending underscores the fragility of private development at a time when rising tariffs, cost uncertainty, and persistent labor shortages are converging. While public infrastructure dollars continue to flow, economists warn that without relief on tariffs and workforce supply, the private side of the industry could face a prolonged slowdown in the second half of 2025.
Originally reported by Sebastian Obando in Construction Dive.
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