Construction spending saw a modest increase in August, rising 0.2% after an upward revision in July data. However, when compared to the same period last year, spending was 1.6% lower, primarily due to a decline in private sector activity. It's important to note that these figures are not adjusted for inflation, and the producer price index for August revealed a 2.2% increase in construction inputs from the previous year, indicating even slower activity than initially reported. The delayed release of this data was caused by the prolonged government shutdown that ended on November 12, 2025, and the September spending figures are yet to be published.
Private residential construction spending experienced a notable 0.8% surge, attributed to robust multifamily construction. Conversely, single-family housing construction witnessed a 0.4% decline in August, largely due to persistently high mortgage rates. This trend began to reverse in September as the Federal Reserve initiated interest rate cuts on September 17, causing 30-year fixed mortgage rates to decrease, albeit remaining in the 6-6.5% range for much of the month. Despite this, home builder sentiment remains subdued, but there is a growing optimism about sales expectations over the next six months.
In contrast, private nonresidential construction spending decreased by 0.3% and was 4% lower year-over-year. The majority of this decline was observed in office, transportation, power, and manufacturing infrastructure. Within the office sector, data centers emerged as a bright spot, setting a new spending record. Data centers now account for nearly half of all office spending, and this proportion is expected to expand further.
Manufacturing construction also faced challenges, with all major categories recording monthly losses. Computer, electronic, and electrical manufacturing construction, the largest category, experienced a 1.8% decline in August and was 16% lower compared to the previous year. This sector had previously witnessed a boom in chip and battery plant construction from 2022 to 2024, driven by federal government incentives and the launch of GenAI.
Public construction spending remained stable month-over-month but was 2.7% higher than a year ago. The majority of this spending occurs at the state and local government levels, many of which began their new fiscal year in July. Stronger spending on education, public safety, power, water supply, and conservation infrastructure contributed to the overall stability in August.
