Nationwide construction spending has now declined in each of the past nine months and is down more than 3 percent since reaching an all-time high in August 2024. While much of that weakness is in the residential segment—with spending on housing construction on pace to decline nearly 10 percent in 2025—the nonresidential segment has also struggled of late, contracting in four straight months. What’s to blame? A range of headwinds, many of which may continue to batter the industry through the remainder of the year.
Lending standards remain uncomfortably tight and borrowing costs restrictively elevated. While the consensus forecast sees multiple rate cuts by the end of 2025, that is far from a certainty given the potential for tariff-induced inflation in the second half of the year.
Emerging signs of material price escalation have also weighed on construction activity. Industrywide input prices are still up just 1.3 percent over the past year, but that’s largely due to stability in the second half of 2024; input prices have risen at a 6 percent annualized rate through the first five months of the year, and tariff-affected goods like iron and steel have exhibited particularly steep price increases.
In addition to boosting input prices, tariff-related uncertainty has carved into construction levels. One in five ABC members reported having a project delayed or cancelled due to tariffs in June, and that’s on top of an unknown number of projects that were never green lit in the first place due to the uncertain outlook.
Given these various challenges, the industry has exceedingly few sources of momentum. Yes, data centers continue to attract investment at a staggering pace, but that’s because demand is so enormous that even the array of current challenges can’t tamp it down—though it remains to be seen if the recently announced 50 percent copper tariffs change this dynamic.
Manufacturing investment, which surged over 200 percent since the start of 2021, has officially turned over under the weight of higher input prices, policy uncertainty, and the unknown future of the Chips Act. Spending in the category is down more than 5 percent since December, with much of that decline coming from the massive computer/electronic manufacturing subsegment (i.e., chip plants). While the subcategory still accounts for about $1 in every $6 of private nonresidential spending, it is down more than 8 percent from the July 2024 peak.
The [Western Michigan] region has added construction jobs at more than twice the nationwide pace over the past year (3.7% vs. 1.5%), and that's despite a lack of broader employment growth in the area.
Without manufacturing momentum, the cumulative effects of several struggling subsegments is far more apparent. Spending on traditional office buildings has plummeted 55 percent (inflation adjusted) since the start of the pandemic. Warehouse investment, which rose rapidly during 2022 and 2023, has fallen back significantly. Hotel construction remains subdued, as does retail.
Despite these nationwide dynamics, Western Michigan’s construction industry has exhibited ample momentum in recent months. The region has added construction jobs at more than twice the nationwide pace over the past year (3.7% vs. 1.5%), and that’s despite a lack of broader employment growth in the area. That construction hiring has been concentrated in the Grand Rapids-Wyoming and Kalamazoo-Portage markets, with construction employment actually down slightly in the smaller submarkets of Muskegon and Niles-Benton Harbor.
This growth, which mirrors rapid statewide construction hiring, reflects the fact that manufacturing investment remains elevated in Michigan. Ford’s EV battery plant in Marshall, for instance, is only about 60 percent complete, while Buell Motorcycles recently announced an $18.5 million expansion in Cascade Township. With these and other recently announced investments ongoing, the regional industry appears likely to hold up better than the nation at large over the second half of 2025.
Anirban Basu, ABC’s Chief Economist
Anirban Basu is the Chairman & CEO of Sage Policy Group, Inc., an economic and policy consulting firm based in Baltimore, MD, with an office in Orlando, FL. The firm provides strategic analytical services to various sectors, including energy suppliers, law firms, medical systems, government agencies, and real estate developers.
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