A surge in data center construction has not been enough to prevent a broader slowdown in U.S. construction spending at the start of 2026, as weakness across private sector activity continues to weigh on overall performance.
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According to an analysis of U.S. Census Bureau data by the Associated Builders and Contractors, modest gains in public construction were largely offset by declining private investment.
Private nonresidential construction spending dropped 0.4% in January compared to the previous month, marking the fourth consecutive monthly decline. In contrast, public nonresidential construction spending edged up 0.6% during the same period, offering only limited support to the broader market.
The primary factor behind the stagnation is a sharp downturn in manufacturing construction, which had previously been a major growth driver.
“While harsh winter weather likely bears some blame, the major issue is the ongoing decline in computer [and] electronic manufacturing construction,” said Anirban Basu. “With CHIPS Act-incentivized megaprojects wrapping up, spending in that subcategory is down nearly 40% over the past 18 months.”
Overall, private nonresidential construction spending has now fallen 8% from its peak in December 2023. Manufacturing construction alone declined 2% month over month in January and is down 15% compared to the same time last year.
Despite the broader downturn, data center construction continues to expand and remains one of the few areas of consistent growth.
“With the exception of data centers, which saw another 2% jump in spending during January, there are few sources of momentum to offset the precipitous decline in manufacturing construction activity,” Basu said. “This lackluster performance is especially concerning in light of the ongoing conflict in Iran, which will ignite materials price escalation and heighten already elevated levels of economic uncertainty.”
However, economists note that even strong demand for digital infrastructure has not been sufficient to counterbalance losses in other sectors.
The slowdown is not limited to manufacturing. Spending declined in nine out of 16 nonresidential construction categories in January, signaling widespread weakness.
Industry experts say rising costs and global uncertainty are discouraging investment decisions across multiple project types.
“Rising construction costs and uncertainty over the impact of tariffs, war in the Middle East, and a slowing economy are leading to slowdowns and cancellations of many project types,” said Ken Simonson of the Associated General Contractors of America. “Aside from investment in data centers and residential improvements, other private construction categories have been slumping for the past year.”
Additional data highlights continued pressure in several key segments:
These declines reinforce concerns that the construction sector may face prolonged headwinds in 2026.
Ongoing tariff pressures and geopolitical instability—particularly tensions involving Iran—are contributing to rising material costs. Steel, aluminum and energy-linked inputs remain volatile, directly affecting project budgets and timelines.
The earlier boom in manufacturing construction was heavily driven by incentives under the CHIPS and Science Act. As large semiconductor projects near completion, a natural drop-off in spending is now occurring, leaving a temporary gap in demand.
While hyperscale and AI-driven data center demand is strong, it is concentrated among a limited number of large players. This means growth in that segment cannot fully offset declines across diversified construction categories.
Looking ahead, economists expect continued volatility:
Originally reported by Sebastian Obando, Reporter in Construction Dive.
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