U.S. Construction Spending Declines Amid Economic Challenges

United States, September 4, 2025

News Summary

Construction spending in the U.S. decreased by 0.1% in July, totaling an annualized rate of $2.14 trillion. This decline is driven by reduced investment in private nonresidential and multifamily projects, compounded by labor shortages and tariff impacts. While public nonresidential spending increased, single-family home construction showed only a slight uptick. Experts predict ongoing challenges for the industry as new residential construction permits drop, reflecting a softening market with significant hurdles ahead.

U.S. Construction Spending Declines in July Amid Economic Headwinds

Construction spending in the United States saw a slight decrease of 0.1% in July, bringing the total to an annualized rate of $2.14 trillion. This decline marks a concerning trend in the construction industry, driven primarily by reduced investment in private nonresidential and multifamily projects.

Factors Contributing to the Decline

The drop in construction spending highlights some alarming challenges facing the industry. While spending on single-family homebuilding and public infrastructure did see increases, they were insufficient to offset the declines in other areas. A recent survey indicated that 16% of contractors have either canceled, postponed, or modified projects due to shifts in demand stemming from ongoing tariff impacts.

Labor shortages compounded these challenges, causing delays in project timelines for 45% of surveyed firms. In addition, policy changes related to federal funding, taxes, and regulations have impacted 26% of contractors, further complicating the landscape for construction.

Sector-specific Trends

Looking closer at the numbers, spending in private nonresidential construction has fallen sharply, down 3.7% over the past year. The commercial sector experienced a 0.9% decline, with specific categories such as manufacturing and private power construction decreasing by 0.7%, and multifamily projects dropping by 0.4%. Conversely, public nonresidential spending saw an increase of 3.1% year-over-year, showing that some areas are still managing to grow despite the overall downturn.

The one bright spot was in single-family home construction, which posted a modest increase of 0.1% in July. However, the overall trend indicates that the sector may not be stable enough to drive significant growth.

Upcoming Challenges in the Construction Sector

Experts are forecasting a challenging second half of the year for the construction industry, with indications of potential further declines in activity. The number of new residential construction permits has also sagged in July, which could lead to spending challenges in the near future, even as new builds have slightly increased.

In comparison to July of the previous year, overall construction spending has dipped by 2.8%, reflecting a continuously evolving and dwindling market. Additionally, new home sales saw an alarming drop of 8.2% from July 2024, further indicating reduced market activity.

Architectural Billings Reflect a Soft Market

billings index score of 46.3 for July. The Architectural Billings Index (ABI) has remained under the critical mark of 50 for 31 of the past 34 months, underscoring a prolonged period of sluggishness for architecture firms.

Experts emphasize the need for consistent policies to encourage new construction and address the ongoing challenges presented by tariffs and labor shortages. The chief economist at a trade association noted the lack of momentum in private subsegments, raising concerns about the sustainability of growth through early 2025.

Market Dynamics and Future Outlook

The national home price index also reflects the current market conditions. According to the S&P CoreLogic Case-Shiller Index, there has been a 1.9% year-over-year increase in national home prices, marking the slowest growth rate since the summer of 2023. This suggests a softening market, as prospective homebuyers may be hesitant amid increasing economic uncertainty.

Overall, the construction industry faces a complex set of challenges moving forward. With labor shortages, tariff impacts, and fluctuating demand complicating project viability, the second half of the year is expected to test the resilience of various sectors within construction.

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Additional Resources

• Construction Dive
• Tri-Cities Business News
• Business Record
• Quartz
• MDM
• Wikipedia: Construction Industry
• Google Search: U.S. construction spending
• Google Scholar: Construction spending
• Encyclopedia Britannica: Construction
• Google News: Construction spending July 2025