Construction Spending Continues to Slide as Developers Face Economic Headwinds

U.S. nonresidential construction spending fell for the fourth consecutive month in May, signaling deeper challenges for the industry as economic uncertainty persists. According to an analysis by Associated Builders and Contractors (ABC), spending dipped 0.2% to a seasonally adjusted annual rate of $1.237 trillion.

Eight out of 16 construction sectors saw declines, with private nonresidential construction falling by 0.4%, while public sector activity remained flat.

“Private sector nonresidential activity remains particularly weak and is down nearly 7% from its January 2023 peak,” said Anirban Basu, chief economist at ABC. “Manufacturing investment, which increased more than 200% in recent years, has begun to fall and is now down more than 5% since its August 2024 peak. With the exception of data centers, on which spending increased another 1% in May, there are few categories with momentum.”

The decline is not only month-to-month—year-over-year comparisons are also down. According to the Associated General Contractors of America, May’s nonresidential construction spending dropped 3.5% from the same period last year, marking the largest annual decrease since February 2019.

“Uncertainty about tariffs, tax rates and labor availability are making it hard for many developers to risk moving forward with planned construction projects,” said Ken Simonson, AGC’s chief economist. “While public sector demand remains solid, it just isn’t enough to offset the private sector pullbacks in activity.”

Basu noted that even sectors that previously saw growth, such as manufacturing, are losing steam. ABC's Construction Backlog Indicator also fell sharply in May, suggesting a slowdown in future work for contractors.

The latest data paints a sobering picture for the rest of 2025. Economists say the combined pressures of elevated interest rates, tight credit conditions, unstable material costs, and changing immigration and trade policies could keep construction activity subdued through the year.

While data center projects remain one of the few bright spots, overall industry sentiment has cooled. Many developers are either shelving new projects or delaying starts until economic conditions stabilize.

The weakening in private-sector activity is particularly concerning, as it represents a significant portion of total construction investment. Although infrastructure spending and public investments are holding steady due to recent federal funding initiatives, they aren't sufficient to counterbalance the drop in private development.

As the Federal Reserve maintains its cautious stance on interest rates, and as global trade tensions continue to evolve, construction firms may need to adjust their forecasts and operations accordingly to navigate a more restrained economic climate.

Originally reported by Zachary Phillips in Construction Dive.