Construction Spending Slows Amid Tariff Uncertainty

Construction spending in the United States decreased by 0.2 percent from December to January, according to a new government report analyzed by the Associated General Contractors of America. The mixed results across residential, nonresidential, and public segments highlight the ongoing challenges in the construction industry, with proposed new tariffs on goods from Canada, Mexico, and China adding further uncertainty.

Ken Simonson, chief economist of the Associated General Contractors of America, noted that construction spending growth has been slowing under pressure from high interest costs and the prospect of new waves of tariffs. "There have already been notable cancellations and postponements for major manufacturing plants, and the impacts of new tariffs are likely to lead to more delays and cancellations," he said.

Total construction spending in January was $2.19 trillion at a seasonally adjusted annual rate, 0.2 percent below the December rate and 3.3 percent above the January 2024 level. Simonson noted that construction spending increased at a 6.6 percent rate in 2024 as a whole—twice as fast as the latest year-over-year increase.

However, manufacturing construction spending declined 0.3 percent in January, and the year-over-year growth slowed to 5.6 percent from 20 percent in 2024. Last week alone, Air Products pulled out of three planned projects, and Intel pushed out completion of its $28 billion Ohio project from 2026 to 2031.

Other major categories that slipped in January include educational construction, which fell 0.6 percent from December; multifamily construction, which decreased 0.7 percent; and private office construction, which declined 0.5 percent. These and other contractions outweighed increases in single-family homebuilding, which rose 0.6 percent; data center construction, which climbed 1.9 percent; and gains in several infrastructure sectors. In particular, highway and street construction spending rose 0.6 percent for the month, sewage and waste treatment outlays increased 0.4 percent; and spending on transportation facilities edged up 0.1 percent.

Association officials noted that the new tariffs will make the cost of a broad range of construction materials more expensive, whether they are from Canada, Mexico, and China or from domestic producers who are likely to raise prices as well. They urged the Trump administration to work quickly to resolve the underlying disputes that are prompting the new tariffs in order to mitigate the negative impacts of the tariffs.

"Higher interest rates are making it harder to get private sector projects approved, and these new tariffs are likely to prompt many developers to hit pause on new projects," said Jeffrey H. Shoaf, the association’s chief executive officer. "We all want to see more domestic suppliers of construction materials, but undermining demand for construction isn’t the right way to stimulate new domestic capacity."

In conclusion, the construction industry faces a challenging environment with slowing spending growth, proposed tariffs, and ongoing uncertainty. As the industry navigates these challenges, it is crucial for policymakers to address the underlying disputes and mitigate the negative impacts of tariffs on construction projects and the broader economy.