Data center demand drives nonresidential construction growth

Nonresidential construction spending has grown for five consecutive months, primarily fueled by the rapid expansion of data centers. Data center-related construction spending rose 7.5% in August and has increased by more than 70% over the past twelve months. This surge has led to a significant demand for specialty trade contractors, particularly electricians, contributing to seven straight months of industrywide job growth despite declines in residential employment.

However, the broader construction sector faces mixed results. Total construction starts fell 1.5% month-over-month in September to a seasonally adjusted annual rate of $1.33 trillion. While institutional starts climbed 16.3%, commercial construction saw an 18.4% drop. Specific sectors such as hotel groundbreakings tumbled 46.3%, and manufacturing starts fell 21% month-over-month.

Cost pressures are also reemerging. Construction input prices rose 2.2% in September, driven by elevated fuel prices and rising costs for tariff-affected materials like iron, steel, and copper. The construction backlog has increased to 8.7 months, with contractors focused on data centers maintaining a significantly longer backlog of 11.3 months.