Power overtakes manufacturing 

August 3, 2026

Construction spending slipped 0.1% in June to a seasonally adjusted annual rate of $2.17 trillion; May spending was revised lower. Spending is now running 3.2% below year-ago levels, the 11th consecutive month of spending below a year ago. (The data are not adjusted for inflation.)

Adjusted for costs, the drop is steeper. Input prices for construction are up 7.1% from a year ago; gains for nonresidential construction are driving those increases as they are 8.4% from a year ago. Diesel plummeted 18% in June from its spring peak but remained 66% higher than a year ago; diesel prices rose as frictions in the Middle East flared again in July. The stop/go dynamics of the conflict in the Middle East show no signs of resolving themselves rapidly. The risk is that the spillover effects of the conflict could add to the effects of tariffs. 

Tariffs imposed last year continue to lift metals: aluminum up 52%, copper up 26%, steel up 17%. New tariffs of metal derivatives are going to add to those costs along with a 50% tariff on Canadian goods, including cement. That all nets out to a real decline in construction activity. Uncertainty surrounding the United States-Mexico and Canada Trade Agreement (USMCA) is another potential source of cost pressures. The agreement has been put in limbo via annual reviews.

Private residential construction fell 0.3% in June and was down 4.7% from a year ago. New single-family spending slipped for the month and is off 3.3% year over year. Single-family building is not expected to recover with mortgage rates climbing again; the 30-year fixed rate is back above 6.5%.  

Builders are moving down the price ladder to reach entry-level buyers. Sales incentives are running at 63%, the 16th straight month at 60% or above, and price cuts reached 37% in July. Builder sentiment has been pessimistic for 15 consecutive months, the longest stretch since 2012. Single-family permits have fallen to their lowest level in nearly a year.

Multifamily spending fell 0.7% for the month and is 1.5% below year-ago levels. Years of record completions pushed rents lower and cooled appetite for new apartments. Fewer units are coming on line, which has begun to push rents up in some markets. The least overbuilt markets on the East Coast and the Midwest are seeing the largest increases. 

Private nonresidential spending eked out a 0.1% gain in June and was down 4.7% from a year ago. Manufacturing construction fell another 1.2% and is down 22% year over year, extending a retreat that began in 2024. It has been the largest nonresidential category for years. It is about to be dethroned by private power construction in size due to the surge in data center projects. 

Many areas are requiring data centers to provide their own power sources or pay for the stress they place on local power grids. In the second quarter GDP release, real private fixed investment in electric facilities surpassed manufacturing structures for the first time since Q2 2022. 

Data centers remain the structural growth driver. Private office construction, which houses data centers, rose 2.8% in June to a record high and is up 15% from a year ago, the strongest growth of any large category. Data center construction hit another record in the month, up 7% from May and 45.8% from a year ago. 

Strip out data centers and the power to feed them, and nonresidential construction is contracting by 0.6% from a month ago and 7.9% from a year ago. There is a speed limit to how much data centers can support activity. Interconnection queues, energy costs and local opposition increasingly dictate how fast projects move.

Public construction was flat in June and up 1.7% from a year ago. Highway and street construction, the largest public category, dropped 0.1%. Educational construction was flat and up just 0.2% over the year, a decline in real terms. Public power spending was up 0.1% in the month but fell from a year ago, a contrast to the private side.