Issue 52 – Second Quarter 2025
The construction industry lost momentum during the second quarter of 2025. While the nonresidential side of the industry has held up somewhat better—largely due to massive investments in data centers—residential construction is contracting as high interest rates and economic uncertainty keep homebuyers on the sideline. With materials prices starting to rise, the industry is in desperate need of lower borrowing costs.
The Good
Data Center Construction
Data center-related construction spending has surged in recent years, rising approximately 350% over the past five years. Despite difficult market conditions, elevated uncertainty, rising materials costs, high interest rates, and spending on new data centers has continued to surge over the past several months.
The Strictly Okay
Manufacturing Construction
Manufacturing-related construction spending has now declined in five consecutive months and is down nearly 6% from the all-time high established in August 2024. The recent decline is largely due to slowing activity in the computer/electronic manufacturing subsegment, a result of waning megaproject activity and uncertainty regarding the future of the CHIPS Act.
The Bad
Interest Rates
Interest rates were expected to decline throughout 2025, but volatile trade policy and a rebound in inflation have thus far dashed those expectations. That said, the weak employment report in July boosted the odds of a rate cut in September, and many forecasters now see two or three interest rate reductions by the end of the year.
The Ugly
Residential Construction
Residential construction spending has plunged 6.0% over the past year as high interest rates and elevated economic uncertainty keep would-be homebuyers out of the market. The residential segment has started to shed jobs, and permits for new housing construction, which remained elevated throughout the post-pandemic period, have fallen below late-2019 levels. While there is a structural housing shortage that builders will eventually address, current market conditions simply are not conducive to significant new home construction.
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