August 2025 Construction Spending Mixed Signals Amid Market Uncertainty

U.S. Construction Spending Edges Upward Despite Sector-Wide Headwinds

According to the latest data from the U.S. Census Bureau, analyzed by the Associated General Contractors of America (AGC) on November 17, 2025, August 2025 construction spending demonstrated a fragile rebound amid persistent economic uncertainty. Total construction spending reached $2.169 trillion at a seasonally adjusted annual rate, representing a 0.2% increase from July 2025 but falling 1.6% below August 2024 levels.

Mixed Residential and Nonresidential Trends

Private residential spending increased 0.8 percent in August, but this positive result masks deeper concerns: residential spending fell 2.0% compared to August 2024. The residential sector's performance was notably mixed across segments:

• Multifamily construction: Up 0.2% month-over-month but down 7.1% year-over-year
• Single-family homebuilding: Down 0.4% for the month and 1.1% compared to August 2024

These results indicate cooling demand in housing despite some monthly improvement, consistent with sustained affordability challenges across the residential market.

Nonresidential Sector Faces Significant Headwinds

The nonresidential construction sector faced substantial challenges in August 2025. Private nonresidential spending slipped 0.3% for the month and fell 4.0% year-over-year—a concerning trend indicating broader economic uncertainty affecting commercial construction investment decisions.

Key nonresidential declines included:

• Manufacturing construction: Down 1.0% month-over-month and 8.5% year-over-year—representing significant retreat from the recent manufacturing boom
• Commercial construction (warehouse, retail, farm): Flat month-over-month but down 8.9% year-over-year
• Power construction: Down 0.2% for the month but up 2.1% year-over-year

According to the AGC analysis, 10 of 16 nonresidential categories posted declines in August, indicating broad-based weakness rather than isolated sectoral challenges.

Data Centers: The Rare Growth Bright Spot

In a notable exception to broader trends, spending on data centers inched up 0.1% in August and has increased 26% year-over-year. The data center sector has emerged as the primary driver of demand for construction services, sustained by ongoing artificial intelligence infrastructure investments and cloud computing expansion.

This divergence highlights how specific technology sectors are driving growth while traditional construction categories face headwinds.

Economic Factors Driving Construction Weakness

According to Macrina Wilkins, the AGC's senior research analyst: "Private and public sector construction owners are clearly being impacted by uncertainty about federal funding, material prices, and labor supply."

The August data was delayed due to the government shutdown, and the reported trends reflect impacts of multiple economic headwinds:

• Federal funding uncertainty: Questions about government capacity and infrastructure program continuation
• Tariff threats: Concerns about potential tariff increases affecting material costs and project economics
• Shrinking labor market: Construction labor shortages driving up labor costs and creating scheduling challenges
• Material cost volatility: Uncertainty about input costs affecting project budgeting

Public Sector Construction Holds Steady

Public construction spending showed relative stability, remaining flat for the month but rising 2.7% over 12 months. This modest growth reflects:

• Highway and street construction: Down 0.2% for the month and 0.8% year-over-year
• Education construction: Up 0.6% for the month but down 0.9% year-over-year
• Transportation spending: Down 0.5% in August but up 8.0% year-over-year

What This Means for Contractors

For construction contractors and firms, the August data signals a market in transition. Key takeaways include:

Selective Market Opportunity: While overall construction spending trends remain weak, specific sectors—particularly data centers—offer growth opportunities. Contractors with expertise and capacity in technology infrastructure should continue to see demand.

Labor Cost Pressures Persist: Shrinking labor markets continue to drive labor costs upward. The AGC noted that federal actions to shrink the labor market are contributing to higher labor costs and schedule uncertainty.

Risk Management Critical: Material price uncertainty, tariff concerns, and labor supply volatility make comprehensive risk management essential for project profitability.

Government Programs Remain Key: Public sector construction remains a stable revenue source, particularly transportation and infrastructure projects, even as residential and commercial sectors cool.

Federal Policy Priorities Going Forward

According to Jeffrey D. Shoaf, AGC chief executive officer: "With the government shutdown over and the administration continuing to resolve trade disputes, now is the time to focus on expanding the construction workforce."

The AGC specifically called for federal action through:

• Dignity and Essential Workers for Economic Advancement Acts to expand construction workforce capacity
• Increased funding for career and technical education to develop construction labor pipeline

These policy recommendations reflect industry consensus that labor supply—not demand—represents the primary constraint on construction growth.

Looking Ahead: Market Outlook

The August 2025 data suggests a construction market at an inflection point. Contractors and firms should prepare for:

• Continued sector divergence (data centers growing, traditional commercial/industrial declining)
• Persistent labor cost pressures despite overall industry slowdown
• Tariff and material cost uncertainty requiring enhanced project budgeting discipline
• Potential policy shifts affecting federal construction programs

Market conditions favor contractors with diversified capacity, strong labor relationships, and disciplined risk management. Firms focused on emerging sectors like data center and technology infrastructure may find more favorable conditions than those concentrated in traditional commercial or residential markets.

Sources: U.S. Census Bureau Monthly Construction Spending Report; Associated General Contractors of America Analysis, November 17, 2025