Issue 54 – Fourth Quarter 2025
Construction industry-related economic data continues to underwhelm. Industrywide job growth has slowed to a crawl, while construction spending is declining. Meanwhile, materials prices escalation has made an unwelcome return, and borrowing costs remain stubbornly elevated. While there are select sources of momentum, a majority of the industry faces a tough economic environment that will likely persist during the early parts of 2026.
The Good
Data Center Construction
After a slight dip in August, data center-related construction spending resumed its meteoric ascent in September and October and is up more than 18% over the past year. Spending in this category will continue to rise rapidly given the massive size of announced investments for the coming years.
The Strictly Okay
Healthcare Construction
Construction spending in the healthcare segment fell in September and October, ending a streak of monthly growth that spanned from April to August. Spending in the category is now down slightly on a year-over-year basis and has been relatively unchanged since the early months of 2024. Recent weakness is entirely attributable to a slowdown in the construction of outpatient facilities. Hospital-related construction has grown slightly over the past year, while specialty care facility construction has grown at a strong pace.
The Bad
Residential Construction
Residential construction spending has rebounded since the middle of 2025, but that renewed growth is entirely due to elevated remodeling activity; construction spending on new residential construction continues to fall, and there has been a particularly steep drop in single family activity. Until borrowing costs move considerably lower, this segment will continue to fall back from post-pandemic peaks.
The Ugly
Interest Rates, The Bond Market, & Borrowing Costs
The Federal Reserve cut rates at their past three meetings, yet borrowing costs remain elevated due to stubbornly high bond yields. This stems largely from geopolitical uncertainty; as of this writing, 10-year treasury yields are at their highest level since August due to American efforts to acquire Greenland. Until the policy environment settles, the construction industry will continue to struggle under the weight of high borrowing costs and tight lending standards.
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