U.S. Construction Spending Declines Amid Economic Challenges

United States, September 4, 2025

News Summary

Construction spending in the U.S. decreased by 0.1% in July, totaling an annualized rate of $2.14 trillion. This decline is driven by reduced investment in private nonresidential and multifamily projects, compounded by labor shortages and tariff impacts. While public nonresidential spending increased, single-family home construction showed only a slight uptick. Experts predict ongoing challenges for the industry as new residential construction permits drop, reflecting a softening market with significant hurdles ahead.

July Construction Spending Dips 0.1% to $2.14 Trillion

Construction spending in July fell by 0.1% from June, leaving an annualized total of about $2.14 trillion according to the latest seasonal adjustments. The small dip is notable because it comes amid ongoing labor pressures and tariff-related shifts in demand that have been shaping project pipelines across many sectors. While total activity eased, some sectors posted gains, and others remained under pressure, underscoring a mixed landscape for builders and developers as the year moves forward.

The decline was driven in large part by softer activity in private nonresidential construction and multifamily housing. These declines offset gains in single-family homebuilding and in public infrastructure projects, which together helped prevent a steeper drop in overall spending. The result is a nuanced picture: the market is not collapsing, but it is not uniformly expanding either, with pockets of resilience offset by areas of weakness.

Industry surveys add context to the raw spending figures. A survey of construction contractors showed that 16% of firms reported that projects were canceled, deferred, or scaled back due to changes in demand tied to tariff policies. Labor shortages emerged as a persistent obstacle, with 45% of firms indicating delays caused by scarce skilled workers. In addition, 26% of firms pointed to policy changes—such as federal funding shifts, tax rules, and regulatory adjustments—as having some impact on their projects.

Sector details and year-over-year trends

Looking at the year-over-year data, spending on private nonresidential construction fell by 3.7% over the past year, signaling ongoing pressure in office, retail, and related private spaces. By contrast, public nonresidential spending rose by 3.1% year over year, reflecting continued activity in publicly funded facilities and infrastructure. In the July monthly figures, broader sector movements showed commercial construction down 0.9%, manufacturing and private power construction down 0.7%, and multifamily projects down 0.4% for the month. At the same time, single-family homebuilding rose by 0.1% in July, offering a small counterweight to the negative monthly readings in other private segments.

The data also align with broader signals from the design and architecture communities. A professional index tracking firm activity in architectural work showed a 46.3 reading for July, indicating a soft pace in billings. That ABI (Architectural Billing Index) has remained below a neutral level of 50 for the majority of the recent months, reflecting a slower business environment for architecture firms

Industry observers note that the downward trajectory has been broad but uneven. A chief economist highlighted that momentum has not carried through to any private subsegment through early 2025, suggesting that the sector could face ongoing headwinds in the near term. The overall tone points to a likely challenging second half of the year, with some analysts predicting further activity reductions if tariffs and labor shortages persist or intensify.

Permits, starts, and the housing market signal

In the housing sphere, new residential construction permits declined in July, while starts moved higher. This combination can be read as a possible sign of shifting demand or project timing that may influence spending in the months ahead. Taken with year-over-year home price data, the market is showing a mixed set of signals: the S&P CoreLogic Case-Shiller index reported a 1.9% year-over-year gain in national home prices—its slowest pace since the middle of 2023. On the demand side, new home sales declined by 8.2% in July compared with July 2024, indicating softer market activity even as prices edge higher in some markets.

Together, these housing indicators imply that while some builders can still move forward, the feasibility and pace of many projects are sensitive to policy settings, financing conditions, and labor availability. Professionals across the supply chain are adjusting expectations for the second half of the year as governments, lenders, and contractors navigate tariff costs, wage pressures, and supply-chain frictions.

Outlook and policy considerations

Analysts and industry groups stress the need for policy certainty to sustain new construction projects. The current environment, marked by tariff rates and ongoing labor shortages, has complicated planning and cost control, making some projects less feasible or more risky to bring to market. As a result, stakeholders are seeking clearer, stable policy signals to help lock in financing, schedule projects, and manage costs.

Overall, the construction market is expected to face a challenging second half of the year, with potential declines in activity if conditions do not improve. The combination of modest growth in some public sectors and declines in several private sectors suggests a landscape in which timing and policy play a central role in determining how much construction occurs and how quickly new work can begin.

FAQ

What was the overall change in July construction spending?

The total construction spending in July fell by 0.1% from June, reaching a seasonally adjusted annual rate of $2.14 trillion.

Which sectors drove the July decline, and which held up?

Private nonresidential and multifamily construction led the decline, while single-family homebuilding and public infrastructure spending rose modestly.

How did tariffs and labor shortages affect project activity?

Tariff-related demand changes contributed to cancellations or deferments for a portion of projects, and labor shortages caused delays for a substantial share of firms.

What were the year-over-year changes in private and public nonresidential spending?

Private nonresidential spending dropped by 3.7% year over year, while public nonresidential spending rose by 3.1% year over year.

What happened in the July housing indicators?

Commercial construction, manufacturing, and private power sectors posted monthly declines, multifamily totals fell, while single-family homebuilding increased slightly. New residential permits fell, but starts rose.

What does the architectural industry data say for July?

Architectural billings index readings indicated softer activity, with the index below the neutral threshold, signaling ongoing weakness in architectural demand.

What is the broader market outlook?

Analysts foresee a challenging second half of the year, with potential further declines unless policy and labor conditions improve. Some housing metrics remain mixed, and price growth in national home prices continues at a slower pace.

Key features chart

Overall spending July -0.1%

Overall July

Private nonresidential YoY -3.7

Public nonresidential YoY +3.1

Single-family July +0.1

Multifamily July -0.4

Commercial July -0.9

Manufacturing / Private power July -0.7

New home sales YoY -8.2

Case-Shiller national +1.9

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Additional Resources

• Construction Dive
• Tri-Cities Business News
• Business Record
• Quartz
• MDM
• Wikipedia: Construction Industry
• Google Search: U.S. construction spending
• Google Scholar: Construction spending
• Encyclopedia Britannica: Construction
• Google News: Construction spending July 2025