New construction spending figures are mediocre — but some sectors are thriving
New construction spending figures are mediocre — but some sectors are thriving
One of the first federal economic releases of 2025 came out Thursday, for a pretty important part of the economy: construction spending. This takes in everything from homebuilding — single-family and apartments — to putting up new manufacturing and power plants, hospitals, schools and police stations, plus repairs and rebuilding of public infrastructure like highways, ports and water treatment plants.
And for November, the performance of this sector was kind of mediocre. Spending overall was flat from October, up 3% from November 2023.
What gives? Partly, this is a sector that’s highly sensitive to interest rates, and market expectations are that the Fed will keep borrowing costs higher, for longer, in 2025. But there were pockets of really strong growth.
Take homebuilding: Nearly half of all construction in this country is residential. Single-family home building has held up well, with spending up about 8% year-to-date through November. Multi-family construction, though, was down nearly 6%.
Demand for rental units is strong, but builders are deterred by high interest rates, said Gary Schlossberg, a global strategist at the Wells Fargo Investment Institute.
“And we do expect to see rental inflation picking up this year,” he said.
Meanwhile, home renovation is booming, said Ken Simonson, chief economist at Associated General Contractors of America.
“Homeowners have a lot of discretionary income and they are putting some of that into fixing up their existing homes,” he said.
In non-residential construction, the big story is a surge in manufacturing, up by double-digits year-over-year.
“One out of five nonresidential dollars is going into giant manufacturing plants producing semiconductors, electric vehicles and batteries,” Simonson said.
A lot of that is driven by billions of dollars in federal spending from the Inflation Reduction and CHIPS Acts.
But with the incoming Trump Administration promising to sharply cut government spending, Paul Ashworth, chief North America economist at Capital Economics said, “the risk would be that we got some of the IRA and CHIPS Act provisions undone, reversed, and then we saw a drop back in manufacturing construction spending.”
One specific type of commercial construction, meanwhile, is really hot, said Ken Simonson. “Data centers jumped 43% year-over-year. And the appetite for them seems to be unabated,” he said.
That’s partly the demand for more energy and processing capacity driven by AI.
The only thing getting in the way — aside from a shortage of skilled construction workers?
“More and more people are saying, ‘We really don’t want those giant ugly white boxes,'” going up across the street from where they live, Simonson said.
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