January construction spending weakens as uncertainty builds

March 23, 2026

January construction spending fell 0.3%, following an upward revision to December. Compared to a year ago, construction spending rose a meager 1% before adjusting for inflation. Construction costs, excluding labor, rose 2.8% from a year ago, which puts us in the red on a year-over-year basis.

Input costs have soared since the start of the Middle East war in early March. Gasoline and diesel prices have hit their highest levels since late 2022. The impact on construction is both direct (diesel powers the trucks, off-road equipment and generators that keep job sites running) and indirect, through fuel surcharges passed onto material deliveries and debris hauling. Cargo shipping disruptions are adding to delays and cost pressures across a wide range of imported material and equipment.

Any cost relief from the Supreme Court's February 20 decision striking down IEEPA tariffs looks short-lived; tariffs on key construction inputs including steel, aluminum, copper and softwood lumber remain in place. Further tariff actions are likely; a USMCA renegotiation later in 2026 adds another layer of uncertainty.

Private residential construction spending slumped 0.8% in January on lower single- and multifamily construction. Record-breaking cold weather across many parts of the country weighed on construction activity. Mortgage rates were trending around 6.1% in January and fell to a 3.5-year low in February, which likely boosted residential construction. The upcoming spring buying and building season faces a tough backdrop, with mortgage rates climbing and uncertainty in the Middle East casting a shadow over near-term demand.

Private nonresidential construction slipped 0.4% for the month; only lodging, office, healthcare and communication infrastructure posted increases. Data center construction, which is captured under the office category, continued its record streak, adding 2.3%. Data center construction is facing a rising tide of local opposition across the country, driven by concerns over water use, energy consumption and higher electricity bills. One report cited 25 project cancellations in December and January alone. The recent surge in energy prices will compound that backlash and bid up the cost of data center construction and use as well.

Manufacturing construction, once the center of growth for nonresidential construction, fell another 2% in January and has now plunged 18% below the peak hit in mid-2024. Manufacturing construction is slumping from its post-CHIPS Act peak. The sector shed over 100,000 jobs in 2025, marking the third consecutive year of net losses.

Public construction spending added 0.6% in January and 4.5% more than a year ago.  Highway and street and conservation and development categories also climbed during the month.