Data center construction leads

October 1, 2026

Construction spending rose 0.9% in August to a seasonally adjusted annual rate of $2.2 trillion, from an upwardly revised July figure. Spending is down 1.7% from a year ago, up from last month’s -2.6% annual rate. August marks the 13th consecutive monthly decline in construction spending. The data does not account for inflation in materials and labor; construction has been contracting much more after accounting for higher costs. 

Spending on private residential construction increased faster than spending on nonresidential, bucking the recent trend. Residential construction rose 1.1% in August after declining in July; it is still down 4.8% year-over-year. The August increase did not come from building new homes but instead from improvements to existing homes. Those rose 2.5%, while single-family and multifamily construction rose only 0.2% each. 

Residential homebuilding is not expected to recover significantly while mortgage rates are elevated. Incentives for entry-level buyers are expanding, even as home builder sentiment falls on expectations of lower sales. 

Total nonresidential construction rose 0.7%, the fifth consecutive month of increases and has added 0.5% year-over-year. That is the first increase on an annual basis since July of last year. The private sector drove most of the gains, pushing the total up 1.1%. 

Data centers remain the main growth driver in construction and investment related to structures, up 7.5% in August alone. Spending reached a record $85 billion; it's now up 73.2% year-over-year, up from July’s 65.3%. That is the strongest growth in any category. The gains reflect enormous demand coming from the buildout for AI infrastructure. The revised GDP data reveal that data center construction was significantly undercounted since 2023 and now stands 34% higher than previous estimates as of the second quarter.

The structures and equipment data are hard to track on AI; it looks like it is undercounting the total as well. The gains are showing up in demand for construction workers and specialty trades. 

The remainder of the increase in nonresidential private construction reflects the demand for AI and aging demographics. The infrastructure to serve AI extends beyond data centers into power and communication. Power construction jumped 0.9% in August and 9.7% year-over-year, while communications construction edged up 0.1% month-over-month and 3.3% year-over-year. We saw a big increase in spending on private healthcare facility construction, up 0.6%, and private transportation construction (privately-owned transport such as bus terminals, airports, etc.), up 1.2%. 

Offsetting some of the gains were construction projects for private education (-0.8%), lodging (-0.1%), commercial space (-0.1%) despite a flat number for manufacturing. Manufacturing has been a category to watch as it has faced increased competition from data center demand; manufacturing slid 19.8% year-over-year.

Public construction added 0.2% in August and 2.5% from a year ago. Highway and street construction, the largest category by sheer size, moved up 0.1%. Bigger drivers of gains included public safety (e.g., emergency services) at 1.6%, water supply construction at 1.2% and public power at 0.6%. 

Costs are a major factor in the weakness of the construction figures. Input prices for construction companies rose 8.7% year-over-year, not including labor costs.¹ The conflict in the Middle East and price pressures from tariffs are contributing. Diesel soared 78% year-over-year in August and is still climbing; increases are being passed through to customers quickly via surcharges for transportation and fuel-intensive services. Materials on construction sites are moved by truck, lifting costs. 

Construction materials affected by tariffs have also seen rising prices; the demand for these products to fuel data center construction is continuing to up the bidding. Aluminum shapes, copper and brass shapes and steel mill products all cost more than 20% year-over-year