US March Construction Spending: Growth Amid Sectoral Headwinds

The US construction sector entered 2025 with a mix of resilience and challenges, as reflected in the March 2025 construction spending data. While total spending dipped slightly month-over-month, annual growth remained robust, signaling underlying demand. However, sectoral divergences—particularly in residential construction and material cost pressures—highlight the need for cautious optimism.

March 2025 Spending Overview

Total construction spending in March 2025 reached a seasonally adjusted annual rate of $2.1961 trillion, marking a 0.5% decline from February’s revised estimate. Despite this monthly contraction, annual growth remained strong at 2.8% compared to March 2024. Year-to-date (January–March) spending totaled $485.7 billion, a 2.9% increase over the same period in 2024.

Private vs. Public Construction Trends

• Private Construction:
• Total private spending fell 0.6% month-over-month to $1.688 trillion, with residential construction down 0.4% to $937.7 billion.

• Nonresidential construction dropped 0.8% to $750.3 billion, though it remained 3.6% higher year-over-year.

• Public Construction:

• Public spending dipped 0.2% to $508.1 billion, with highway construction falling 0.5% to $145.8 billion.
• Educational construction, however, grew 7.6% annually to $110.0 billion, indicating sustained investment in schools and universities.

Sector-Specific Dynamics

• Residential Construction:
  The residential segment faces headwinds from rising mortgage rates and elevated material costs. While monthly declines occurred, annual growth of 2.8% suggests demand remains, albeit tempered. Single-family and multifamily starts fell 4% and 6% year-to-date, respectively.

• Nonresidential & Public Infrastructure:
  Nonresidential sectors like manufacturing and transportation showed resilience. Transportation construction grew 0.7% month-over-month to $22.6 billion, with a 10.2% annual increase driven by projects like the $3.5 billion Sunrise Offshore Wind Farm and $2.1 billion Greenlink West Transmission Line.

Key Challenges: Material Costs and Policy Uncertainties

• Input Price Pressures: Construction input prices rose 0.5% in March, driven by higher steel and copper costs. Over 40% of contractors anticipate profit declines over the next six months due to these pressures.
• Trade Policy Risks: Tariff uncertainties, particularly in steel imports, have slowed project planning, prompting a wait-and-see approach from developers.

Note: A rising CAT stock could signal investor confidence in construction equipment demand, despite sector-specific challenges.

Construction Starts: A Bright Spot

Total construction starts surged 3% in March to a seasonally adjusted annual rate of $1.1 trillion, driven by nonresidential building (6%) and nonbuilding projects (9%), including utilities and gas infrastructure. This bodes well for future spending, though residential starts lagged, down 5% year-to-date.

Investment Implications

1. Infrastructure Plays: Public projects like highways and educational facilities offer stability. Utilities and renewable energy infrastructure (e.g., wind farms) are growth areas.
2. Material Cost Exposure: Avoid overexposure to companies reliant on steel/copper unless hedged.
3. Sector Rotation: Shift focus toward nonresidential sectors (transportation, manufacturing) and public infrastructure over residential.

Conclusion

The March data underscores a sector in transition: while short-term headwinds like material costs and policy risks persist, the 2.8% annual growth in total construction spending and 3% rise in construction starts indicate a resilient base. Investors should prioritize projects tied to federal infrastructure spending (e.g., highways, renewables) and monitor material cost trends closely. The $485.7 billion year-to-date total and notable projects like the Sunrise Wind Farm highlight opportunities in sectors insulated from residential market volatility.

For now, the construction sector remains a mixed bag, but its annual growth trajectory and project pipeline suggest long-term upside—if companies can navigate input cost pressures and regulatory uncertainty.