Dive Brief:

• Nonresidential construction spending ticked down 0.2% in December to a seasonally adjusted annual rate of $1.24 trillion, according to an Associated Builders and Contractors analysis of U.S. Census Bureau data released Monday.
• Spending declined in nine of the 16 nonresidential subcategories on a monthly basis. Public nonresidential spending fell 0.5%, while private nonresidential spending edged up 0.1%, according to the report.
• President Donald Trump’s proposed tariffs of 10% against China and 25% against Canada and Mexico generated concerns among industry economists about rising material costs and the potential impact on future project spending, though the new fees for Canadian and Mexican products were paused for at least 30 days on Monday. The Chinese tariffs went into effect Tuesday morning.

Dive Insight:

Concerns over rising material costs continue to weigh on the future of construction spending, said Jeffrey Shoaf, CEO at the Associated General Contractors of America, in the trade association’s latest news release.

“Despite declines in a few segments, construction demand remains relatively strong,” said Shoaf. “But increasing the cost of a range of construction materials will prompt contractors to raise bid prices, potentially undermining future demand for projects.”

The public sector posted a sharp decline in spending to close out 2024, though the drop was likely temporary as colder weather and the transition between presidential administrations slowed construction work, said Anirban Basu, ABC chief economist. 

However, while public activity should rebound in the coming months, high interest rates and the emerging trade war will likely hamper many privately financed segments in the short term, he added.

Trump paused 25% tariffs on Canada and Mexico for at least a month on Monday, according to the Associated Press. But his administration officially implemented additional tariffs on imports from China starting Tuesday, according to the White House.

In response, Beijing announced on Tuesday several economic measures targeting the United States, including a 15% tax on certain types of coal and liquefied natural gas and a 10% tariff on crude oil, agricultural machinery, large-displacement cars and pickup trucks, according to CNN. The measures take effect on Feb. 10.

China also announced new export controls effective immediately on a variety of metal products and related technologies. Those include tungsten, a mineral used in industrial and defense applications, as well as tellurium, which can be used to make solar cells.

But uncertainty around tariffs shouldn’t affect the pace of spending on data centers or manufacturing construction projects, said Basu.

Data centers and manufacturing projects accounted for 94% of the total nonresidential spending increase from December 2023 to December 2024, highlighting the concentration of growth in these sectors, according to ABC.

“What little private sector nonresidential momentum exists remains concentrated in just two segments,” said Basu. “Activity in [the data center and manufacturing] segments, and perhaps only these segments, will remain elevated regardless of upward pressure on construction costs.”