CONSTRUCTION OUTLAYS SLIP IN JANUARY AS POTENTIAL WIDESPREAD TARIFFS THREATEN TO PUSH BACK INVESTMENT DECISIONS, UPEND COSTS AND SUPPLY CHAIN

Spending Declines for Manufacturing, Educational, and Multifamily Construction, Outweighing Gains in Single-Family Homebuilding, Infrastructure Categories, and Data Center Projects

WASHINGTON, D.C. – RealEstateRama – Construction spending decreased 0.2 percent from December to January with mixed results across residential, nonresidential, and public segments, according to an analysis of a new government report that the Associated General Contractors of America released today. Association officials cautioned that spending on new construction projects could be negatively impacted by proposed new tariffs on a range of goods from Canada, Mexico and China that are likely to make projects more costly.

“Construction spending growth has been slowing under pressure from high interest costs and now the prospect of new waves of tariffs,” said, Ken Simonson, chief economist of the Associated General Contractors of America. “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.”

Spending totaled $2.19 trillion at a seasonally adjusted annual rate in January. The total was 0.2 percent below from 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.

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. Simonson noted that 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.”

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