CONSTRUCTION MARKET OVERVIEW

Public spending holds the line as private construction retreats

The conflict in the Middle East has introduced a new layer of uncertainty to the sector. Prolonged disruption will pressure diesel, asphalt and petrochemical-derived material costs at the point where broader input costs are already putting pressure on construction costs.

Total construction spending declined about -0.36% in nominal terms year-over-year in Q4 2025, and after adjusting for cost increases, real output contracted further. Private construction drove the spending decline throughout the second half of 2025, with declining from US$1.70 trillion seasonally adjusted annual rate in Q3 2024 to US$1.65 trillion in Q4 2025, a 3.0% year-over-year drop in Q3 and 1.5% drop in Q4. The softening reflects the winding down of the manufacturing construction boom, ongoing residential affordability headwinds, and elevated financing costs that continued to delay project starts.

Public construction provided some counterweight, expanding 4.0% year-on-year in Q3 2025 and 3.5% in Q4, reaching US$521.7 billion SAAR in December. Infrastructure Investment and Jobs Act (IIJA) funding continued to flow into highway, water, and transportation projects, keeping public outlays on an upward trajectory. The divergence between public growth and private decline is expected to persist in 2026 as multi-year federal programs sustain activity in highway, transit and utility infrastructure. Even with incentives, construction spending remains heavily procyclical, so the softening macro-environment is likely to lead to weaker overall construction demand.

Source: Census Bureau

Total non-residential spending continues to underwhelm

Rebased to Q4 2019, total non-residential construction spending reached 142.9 by Q4 2025, masking a widening divergence between public and private components. Private nonresidential peaked at 148.9 in Q4 2023, the high-water mark of the manufacturing construction surge, and has since retreated to 139.2, a 6.5% decline from that peak and the lowest reading since early 2023. Public non-residential followed the opposite trajectory, climbing steadily to 148.7 by Q4 2025, up 2.8% year-on-year, as infrastructure programs ramped up. The two series, which tracked closely through 2022, have diverged by nearly 10 index points.

Source: Census Bureau

Utilities and water surge as manufacturing pulls back

Manufacturing remains the largest non-residential subcategory, but its retreat accelerated through 2025. Spending fell to $202.4bn SAAR in Q4 2025, down 11.4% year-over-year, the steepest annual decline of any major category. The wave of chip-fabrication, battery-plant, and reshoring projects that drove the 2022–2024 construction surge has stalled. CHIPS Act-funded semiconductor fabs are moving from construction into commissioning, and new project announcements slowed materially amid tariff uncertainty and elevated financing costs. Healthcare, the sector’s other soft spot, edged down 1.4% to $68.7bn.

Elsewhere in non-residential, the picture is more mixed than prior periods of broad contraction would suggest. Commercial construction posted a 0.7% year-over-year gain in Q4 to US$121.9bn, though this followed declines of nearly 9% earlier in 2025 and reflects favorable base effects as much as genuine recovery. Select retail and mixed-use development in high-demand metros drove the late-year uptick. Office increased 2.4% to $107.6bn, a modest but notable stabilization given persistent remote work headwinds. Lodging edged up 2.0% to $24.8 bn as hotel development regained momentum in drive-to and resort markets. Amusement and recreation rose 6.1% to $44.4bn, reflecting sustained investment in sports venues and entertainment districts.

The clearest gains are concentrated in infrastructure and utility-related sectors. Transportation construction rose 5.3% year-over-year to $68.9bn, while power construction grew 5.8% to US$162.4bn, sustained by data center growth and grid modernization programs.

Source: Census Bureau