The US Private Nonresidential Construction 12-month moving total (12MMT) is at a record high and was rising as of February (the latest data). However, decline is imminent. The following will explain the downside pressures on Construction as well as highlight some segments of Nonresidential Construction that we expect to fare better during the coming year.
US Single-Unit Housing Starts posted steep rise in the wake of the pandemic, but subsequently declined sharply. Starts lead Nonresidential Construction by about two years; more homes mean more people, and therefore more demand for nonresidential buildings such as recreational buildings, schools, hospitals, and shopping areas.
The post-pandemic decline in Starts has been weighing on Nonresidential Construction, but Construction has benefited from government stimulus and incentives, particularly in the manufacturing construction submarket due in part to the CHIPS and Science Act. With that funding sunsetting, the downside pressure will manifest, and Nonresidential Construction decline will take hold. As can be seen in the chart, the steep post-COVID-boom decline in Starts suggests that Nonresidential Construction decline is due.
Last year’s economic weakness is another factor against Nonresidential Construction. US Total Industrial Production was relatively flat during 2024. Faced with less-than-stellar performance, many companies were likely occupied with mitigating the weakness rather than planning expansions for the following year.
Note that Nonresidential Construction is a measure of put-in-place spending, and it lags the overall industrial economy by about a year. If businesses were greenlighting fewer projects last year, they will be generally spending less put-in-place this year.
While overall Nonresidential Construction will decline imminently, US Private Manufacturing Construction, which accounts for about 30% of Nonresidential Construction, will rise on a 12MMT basis for a few more months into mid-2025. The waning of CHIPS funds and other government incentives will then help tip Construction into decline.
Some smaller segments of Nonresidential Construction are already declining.
The retail construction sector declined throughout 2024 and is expected to undergo further weakness.
Work-from-home trends have contributed to a weak office construction sector since the arrival of COVID. The sector rebounded somewhat in 2022, but it has been declining since, with more decline ahead this year.
Data center construction is a positive outlier and is expected to continue to rise throughout the overall Nonresidential Construction downtrend. This will occur as AI and other tech advances march forward, stimulating demand for data processing.
If you are an industrial business that sells into the nonresidential sector, calculate your rates-of-change and compare them against the rates-of-change for US Industrial Production and US Nonresidential Construction. ITR Economics can help with all of this!
Does your business move through business cycle highs and lows roughly simultaneously with Industrial Production but before Nonresidential Construction? If so, then you have likely already faced the downside pressure of Nonresidential Construction’s imminent decline, because the nonresidential sector lags the industrial economy by about a year. You should be seeing far better market conditions for your business this year, which will be reflected as stronger Nonresidential Construction trends starting in the second half of 2026.
If your business trends more coincidentally with Nonresidential Construction, prepare for several quarters of weakness ahead. However, check your specific markets – not all nonresidential construction markets will trend in line with the aggregate. Again, ITR Economics can help you here.