Data centers are “perhaps the only remaining source of industry momentum” as most private sectors pulled back in March, according to Anirban Basu, chief economist at Associated Builders and Contractors (ABC). His comments come as new data shows nonresidential construction spending fell 0.5% in March to a seasonally adjusted annual rate of $1.25 trillion, down from February’s record-setting levels, based on ABC’s analysis of U.S. Census Bureau figures released Thursday.

The decline was broad-based, with spending falling in 11 of 16 nonresidential subcategories. Private nonresidential construction dropped by 0.8%, while public nonresidential spending edged down 0.2%. Despite the overall slowdown, data centers continue to serve as the primary engine of growth in private construction. High borrowing costs, tighter lending conditions, and ongoing trade tensions have put a damper on broader market activity, Basu said.

Dive Insight: Industry Faces Caution and Uncertainty

Nonresidential construction’s retreat in March followed a historic high in February, but many economists warn this pullback could signal more trouble ahead. Ken Simonson, chief economist for the Associated General Contractors of America, pointed to widespread hesitation among project owners as a key factor.

“Media reports and corporate announcements suggest owners are hesitant to start new projects in light of uncertainty over tariffs, government funding and other policy upheavals,” said Simonson. “Spending has slowed over the past year and as current projects wind down, there may be several months of declining construction activity.”

Even some of last year’s strongest segments, like manufacturing construction, have shown signs of softening. “That caution is already materializing in the data,” Basu noted. “Even manufacturing construction, a key growth area last year, lost steam in March.”

Data Centers Fuel What’s Left of Growth

While most private subsectors saw spending declines, data centers stood apart. “Nonresidential construction spending fell sharply in March, with declines spread across virtually every private subsector,” said Basu. “Data center investments, which accounted for more than 70% of the increase in private nonresidential construction spending between March 2024 and March 2025, are perhaps the only remaining source of industry momentum.”

Public sector spending, by contrast, still shows some resilience, with ABC’s data indicating a 4.8% year-over-year increase. Private nonresidential spending, however, has risen just 1.6% over the same period.

Basu warned that the outlook remains cloudy. “Given unprecedented economic uncertainty, spending is unlikely to rebound in the coming months,” he said. “While a majority of contractors surveyed in March were still optimistic about their future sales, according to ABC’s Construction Confidence Index, sentiment is likely to falter as the effects of tariffs begin to raise input prices and stall or cancel projects.”

Broader Economic Headwinds Weigh on Construction

The construction sector’s slowdown coincides with a broader contraction in the U.S. economy. Commerce Department data shows the economy shrank 0.3% in the first quarter, marking the first decline since early 2022. A surge in imports ahead of new Trump administration tariffs played a major role in the contraction, as companies rushed to bring in goods before higher costs hit.

Industry observers note that the combination of political uncertainty, rising material costs, and tighter access to credit has made owners and developers wary of launching new projects, especially in sectors outside of data centers. With the pipeline of active projects thinning, many construction firms could face a tough road ahead, particularly if tariff-related price increases further erode margins.

While the data center boom offers some cushion, most experts agree it won’t be enough to offset broader weaknesses in the nonresidential sector. As Simonson put it, “Spending has slowed over the past year, and as current projects wind down, there may be several months of declining construction activity.”

Originally reported by Sebastian Obando in Construction Dive.