Nonresidential construction spending increased for the fifth straight month in August. Unfortunately, that growth streak is slightly misleading given the nearly unprecedented narrowness of the industry’s momentum. Put simply, data center construction activity is expanding rapidly while the remainder of the industry is shrinking.
Data center spending jumped another 7.5% in August—an almost unfathomable monthly increase—and is up an incredible 73% year over year. Remarkably, the subsegment’s growth has accelerated over the past five months, expanding at a 149% annualized rate since March. When the first ChatGPT model was released to the public in November 2022, data center construction spending totaled less than $14 billion per year. As of August 2026, annual data center spending has surged above $85 billion.
Excluding data centers, total construction spending has actually decreased over the past year, falling 3.5%. That weakness is concentrated in privately financed segments, led by a 19% year-over-year decline in manufacturing-related construction projects. As CHIPS Act-incentivized projects continue to wind down, manufacturing-related activity will continue to slow.
The reason for the divergence between data center activity and the rest of the industry is simple: demand for the former is so strong that it can carve through economic headwinds that are battering the latter. Take, for instance, materials prices. Construction input prices are up nearly 9.0% over the past year due to the combination of surging fuel prices and tariff-related escalation (think iron, copper, and aluminum).
Labor cost escalation also reemerged over the summer, with average hourly earnings for nonmanagerial construction workers hitting a cyclical peak of +5.0% year over year. Even that is largely attributable to the data center boom, which has caused wages for certain occupations to surge. Average hourly earnings for electricians, for instance, are up more than 7.0% over the past twelve months.
And then there are borrowing costs. Ten-year treasury yields have risen to a multi-decade high, and the resulting rise in financing costs means certain projects won’t pencil out at the margins, all else equal. Given resurgent economywide inflation and broader concerns about the U.S. fiscal situation, borrowing costs are unlikely to recede over the next few quarters.
Western Michigan’s construction industry has struggled with the same headwinds, and regional construction employment has now been down on an annual basis in each of the past six months, falling 0.4% between August 2025 and August 2026. This decline, largely attributable to several manufacturing projects wrapping up, is notably smaller than the 2.0% year-over-year decline in statewide construction employment, and parts of the region have seen solid employment growth; both the Kalamazoo and Muskegon areas have added construction jobs over the past year, though those areas are notably smaller than Grand Rapids.
As is the case with the nation at large, the data center segment represents a major source of optimism. Western Michigan has a substantial pipeline of prospective data center projects, although the key word there is “prospective.” Community pushback has grown intense enough to delay, or even cancel, some data center projects, and that could limit the extent to which planned projects benefit the construction industry.
Importantly, the region has demonstrated some momentum outside of the data center segment. Two food and beverage projects totaling more than $1 billion in investment, for instance, broke ground this summer, while healthcare activity remains robust.
Ultimately, contractors in Western Michigan should remain relatively busy over the next few quarters, even as high materials, labor, and borrowing costs weigh on sales and profitability.
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