Dive Brief:

• Nonresidential construction spending ticked up 0.1% in January to a seasonally adjusted annual rate of $1.25 trillion, according to an Associated Builders and Contractors analysis of U.S. Census Bureau data released Monday.
• Even though spending increased in 12 of the 16 nonresidential subcategories, data center construction accounted for more than 75% of the overall monthly gain, said Anirban Basu, ABC chief economist.
• What would usually be seen as a positive, however, belies economic uncertainty that continues to linger, with contractors facing high interest rates, tariffs and slow momentum in key sectors such as manufacturing, according to ABC.

Dive Insight:

High borrowing costs and tariffs will weigh on future construction activity, adding to an already uncertain investment landscape, said Ken Simonson, chief economist of the Associated General Contractors of America.

“Construction spending growth has been slowing under pressure from high interest rates costs and now the prospect of new waves of tariffs,” said Simonson in a news release. “There have already been notable cancellations and postponements for major manufacturing plants and the impacts of new tariffs are likely to lead to more delays and cancellations.”

With tariffs already raising material costs, developers may choose to pause projects rather than absorb those higher costs, particularly in the private sector, said AGC CEO Jeffrey Shoaf.

“Higher interest rates are making it harder to get private sector projects approved, and these new tariffs are likely to prompt many developers to hit pause on new projects,” said Shoaf in the release. “We all want to see more domestic suppliers of construction materials, but undermining demand for construction isn’t the right way to stimulate new domestic capacity.”

Nevertheless, data center construction continues to defy these broader market challenges, said Basu.

“While that [data center] segment is so hot that it can melt through the effects of high interest rates, many other categories appear to be frozen in place,” said Basu. “Even manufacturing, which still accounts for nearly $1 in every $5 of nonresidential construction spending, is virtually unchanged since May of last year.”

Despite the “far from encouraging” report, contractor confidence remains relatively strong for now, said Basu. Nearly 65% of contractors expect their sales to increase during the first half of 2025, according to ABC.