Slight blip up in construction

February 27, 2026

Construction spending rose 0.3% in December after falling 0.2% in November. Data for both months were released simultaneously as the Census Bureau continues to catch up on releases delayed by the six-week government shutdown. Spending fell 0.4% short of the year-ago level.

Input costs (excluding labor) added 3.4% in December compared to a year ago. Essential materials such as steel, aluminum and copper increased by double-digit rates on a year-over-year basis.

Labor costs for construction, as tracked in the employment cost index, jumped 0.7% during the last three months of 2025 on a monthly basis and 4.3% compared to a year ago. That is much faster than overall wage and salary growth at 3.4%.

Private residential construction spending surged 1.5% on stronger single-family construction in December. Mortgage rates ticked lower in December; that boosted demand.

More new housing construction occurred in the South and West, as evidenced in the December housing starts. The South has long been the largest market and a bellwether for construction. However, some markets are now stuck with a glut of new homes for sale.

Home builder optimism in December reached the highest level in eight months, but that euphoria was short-lived. January and February sentiment slipped, despite even lower mortgage rates at the start of the year. The rise in the costs of construction from labor to material inputs is taking a toll on sentiment and the ability to move downstream to meet pent-up demand from first-time buyers.

Private nonresidential construction fell 0.7% in December as all categories except for office, transportation and power fell. Within office, data center construction continues to be a bright spot, hitting another new record; the other office categories continue to lose ground. Many of the inputs to data centers are imported but received tariff waivers to keep costs down and compete in what has become an AI arms race.

Manufacturing construction, the bright spot in 2023 and 2024, fell another 2.5% to the lowest level in almost three years. Computer, electronic and electrical manufacturing led the decline, dropping 5.5%. Other categories of manufacturing suffered, except for plastics and food. Food and beverage manufacturing construction has been recovering since August; plastic and rubber since September.

Public construction spending, which is mostly done at the state and local levels, slipped 0.5% in December but still added 3.5% compared to a year ago. The only growth appeared in amusement and recreation, power and sewage and waste disposal.