U.S. construction spending fell again in July, and the composition of the decline matters more than the headline. Total construction spending ran at a seasonally adjusted annual rate of $2,157.6 billion, down 0.5 percent from a revised June estimate of $2,167.7 billion and down 3.8 percent from July 2025, the U.S. Census Bureau reported on September 1, 2026. Through the first seven months of the year, spending totaled $1,244.6 billion, 3.5 percent below the $1,289.7 billion recorded over the same period in 2025.

What the numbers say

From the Census release, CB26-140:

• Private construction: $1,614.2 billion SAAR, down 0.5 percent from June.
• Private residential: $859.0 billion, down 1.3 percent from June.
• Private nonresidential: $755.2 billion, up 0.4 percent from June.
• Public construction: $543.4 billion, down 0.2 percent from June.
• Public educational: $112.3 billion, down 0.2 percent.
• Highway: $150.3 billion, down 0.2 percent.

Reuters noted the total is the lowest level since October 2023, and that economists had forecast spending would be unchanged. June was revised higher to show spending flat rather than down 0.1 percent. Reuters also reported that federal government construction spending fell 3.5 percent while state and local spending was unchanged, and that investment in nonresidential structures contracted in the second quarter for the tenth straight quarter.

The concentration problem

Here is the part that should concern anyone building a 2027 pipeline. The Associated General Contractors of America's analysis found that private office construction, the Census category that contains data centers, jumped 21.3 percent year over year — but that increase was entirely data centers, which soared 57.2 percent, while other private office construction fell 10.6 percent, according to AGC.

Manufacturing construction, the largest private nonresidential segment, declined for the sixth consecutive month and is down 21.7 percent from a year earlier. Power, including oil and gas related projects, rose 6.5 percent over twelve months. Private residential fell 7.3 percent year over year, with single-family down 6.5 percent and multifamily down 0.9 percent. Public highway and street construction, the largest public category, was 4.5 percent higher than July 2025 despite the monthly dip.

"Only three categories are propping up construction spending: data centers, power and highway projects," AGC chief economist Ken Simonson said. "Unfortunately, all of these segments face risks of cooling or shrinking due to worker shortages, political pushback, tariffs and a possible federal funding lapse for highway programs." AGC chief executive officer Jeffrey D. Shoaf added that "politics and policies threaten the three strongest market segments at this point, putting construction activity and employment levels at risk." Both quotes are from the AGC release.

Associated Builders and Contractors chief economist Anirban Basu put a sharper point on it. The monthly increase in nonresidential spending came entirely from data center activity, and excluding data centers, nonresidential spending fell for the second consecutive month to its lowest level since September 2023, Construction Dive reported. "Nonresidential activity is even more concentrated given that the power category, which has been boosted by the electricity needs of data centers, has also grown substantially over the past year," Basu said. "That upbeat outlook is increasingly dependent on a single sector."

Why the residential side is weak

Housing is being squeezed from both ends. The average rate on the 30-year fixed mortgage is hovering near a one-year high of 6.66 percent, and homebuilders are also working through a glut of unsold single-family homes, Reuters reported. Single-family spending dropped 3.2 percent in July alone. Multifamily edged up 0.2 percent for the month, the one modest bright spot in residential.

Why it matters for construction professionals

A 0.5 percent monthly decline is not, by itself, alarming. The structural picture behind it is what deserves attention.

• The market is not soft everywhere; it is strong in a handful of places and weak nearly everywhere else. Contractors reading only the aggregate numbers will misjudge their own segment. A firm doing data center or power work sees a boom. A firm doing private office, retail, manufacturing or single-family sees a contraction.
• The manufacturing decline is now sustained, not a blip. Six consecutive monthly declines and a 21.7 percent year-over-year drop reflect the fading of the 2022 CHIPS and Science Act and Inflation Reduction Act pipeline, as Reuters noted. Firms that built industrial capability during that wave need a replacement market.
• Public work is holding better than private. Public spending is up 1.7 percent year over year and highway is up 4.5 percent, per AGC. That relative stability is contingent on federal highway funding continuing, which Simonson flagged as a risk.

Implications for owners, developers, contractors and subcontractors

For owners and developers, borrowing costs remain the binding constraint on private work. With mortgage rates near a one-year high and nonresidential structures investment down for ten straight quarters, capital is being rationed toward projects with contracted revenue behind them. Speculative office, retail and light industrial will keep struggling to pencil.

For general contractors, the practical response is honest segment analysis. If more than half of your revenue sits in categories that are contracting nationally, the question is not whether to diversify but into what. Public infrastructure, healthcare, education, water and wastewater, and mission-critical work are the categories with demand. Each has different bonding, prequalification and delivery requirements, and entry takes 12 to 24 months.

For subcontractors, the concentration risk cuts both ways. Data center work pays well and runs long, but it also concentrates receivables in a small number of hyperscale owners and general contractors. Firms with more than a third of backlog in one segment and one customer should be pressure-testing what happens if that owner pauses capital spending.

What to watch next

• The next Census release on October 1, 2026, covering August, per the Census schedule. Watch whether nonresidential excluding data centers stabilizes or posts a third consecutive decline.
• Federal highway funding. A lapse would hit the one public category with real year-over-year growth.
• Whether data center announcements continue converting into spending. Political pushback at the state and local level is now a documented risk, not a theoretical one.
• Mortgage rates and single-family inventory, the two variables that determine when residential turns.

Bottom line

Construction spending at $2,157.6 billion SAAR in July was down 0.5 percent month over month, down 3.8 percent year over year, and at its lowest level since October 2023. The narrower reading is more useful than the headline: data centers grew 57.2 percent year over year while other private office fell 10.6 percent, manufacturing fell 21.7 percent, and excluding data centers, nonresidential spending hit its lowest level since September 2023. Three categories are holding the industry up, and all three carry identifiable policy and labor risk. Contractors should be planning for a market that is genuinely two-speed rather than one that is uniformly soft.

Sources

• U.S. Census Bureau, "Monthly Construction Spending, July 2026" (CB26-140) — https://www.census.gov/construction/c30/pdf/release.pdf
• U.S. Census Bureau, Construction Spending current release index — https://www.census.gov/construction/c30/current/index.html
• Associated General Contractors of America, "Construction Spending Declines In July From June And A Year Earlier" — https://www.agc.org/news/2026/09/01/construction-spending-declines-july-june-and-year-earlier-contractors-cope-soft-demand-most-types
• Construction Dive, "Data centers drove all nonresidential construction spending growth in July" — https://www.constructiondive.com/news/data-centers-nonresidential-spending-growth-july/829473/
• Reuters, "US construction spending drops to nearly three-year low in July" — https://www.reuters.com/business/us-construction-spending-drops-nearly-three-year-low-july-2026-09-01/