CONSTRUCTION MARKET OVERVIEW
Construction spending contracts amid broader tariff and geopolitical uncertainty
After a rapid post-pandemic ascent, total construction spending has drifted lower for four straight quarters and now sits 2.8 percent below its recent peak as of Q2 2025. With an ever-shifting tariff landscape, pressurized construction costs and increased geopolitical tension, developers have started to bide their time and deliberate investment decisions.
This is more acutely reflected in private investment levels, more so than public funding. Figure 2 shows that while private construction has supported growth in the past, constructions retrenchment is driven by private cutbacks and weakened residential activity amid elevated interest rates. Public spending maintains pace on the back of infrastructure programs, yet its buoyancy is only able to lift a small proportion of overall industry activity.
Source: Census Bureau
Public sector influence, however, is perhaps greater in the non-residential sector as federal programs, such as IIJA, CHIPS and IRA now supply the momentum and have generated a 4 percent year-on-year increase. This has helped to increasingly offset the scaling back of private non-residential spending, notwithstanding surging data center growth.
Source: Census Bureau
Infrastructure gains, manufacturing retreats
Manufacturing remains the largest non-residential category at 10.6 percent of June 2025 outlays, yet spending fell 4.7 percent year over year as the wave of chip-fabrication and battery-plant work cools. Private mainstays, such as commercial warehouses, lodging and tech-heavy office, are also retreating, each posting flat to high-single-digit declines.
In contrast, the baton has passed to public and utility work: transportation, highway and street, and power projects together command roughly one-sixth of total non-residential construction spend and are all expanding. Meanwhile, environmental segments such as sewage, waste disposal and water supply show the fastest gains from smaller bases.
The rotation underscores an important shift, that public-funded infrastructure is now cushioning the loss of industrial momentum. However, overall growth depends on whether federal programs can maintain this support as private megaprojects taper.
Source: Census Bureau
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