Private nonresidential construction spending shrank for the seventh consecutive month in May and is down more than 8% from the November 2024 all-time high. Much of that contraction is due to the decline in manufacturing megaprojects. Massive, CHIPS Act-incentivized developments are winding down, and spending on computer/electronic manufacturing structures has plunged more than 53% over the past two years.
Some of that decline has been offset by the ongoing AI build out. Data center construction spending continues to surge, up 225% over the past three years, and is now larger than the warehouse segment or any manufacturing subcategory. The insatiable demand for more data centers has also fueled robust power-related construction activity as developers scramble to meet the facilities’ power needs.
There are a few other small but notable bright spots. Amusement and recreation construction activity, for instance, continues to grow at a healthy pace, and the religious category has posted a meaningful rebound over the past several quarters. Those are small categories, however, and most private sector categories have a distinct lack of momentum heading into the second half of 2026.
Data centers are, somewhat perversely, a headwind for other segments. In addition to dominating development opportunities, they are putting upward pressure on labor costs for certain specialty trade workers.
Data centers are also securing capital that would otherwise go to other segments, and there’s not a lot of capital to go around at the moment. Stubbornly high rates and tight lending standards remain a stiff headwind for the construction industry, and certain segments are unlikely to bounce back until borrowing costs subside.
That’s especially true given recent increases in materials costs. Construction input prices were up nearly 10% on a year-over-year basis in May. Yes, much of that increase is due to higher oil prices—caused by the conflict in Iran—which have since fallen, but the outlook for that conflict remains uncertain. That previous increase in oil prices will affect other inputs in the coming months, and that adds to tariff-related price pressures, with certain commodities like iron, steel, and copper posting ongoing price increases.
Western Michigan’s construction industry has struggled with the same headwinds, and construction employment in the region is down 1.6% over the past year. That’s the largest annual decline since early 2021. While some of this stagnancy can be traced to waning megaproject activity, like the completion of the LG plant in Holland, much of it is due to bad market fundamentals and a stagnant statewide economy.
Both the region and broader state have lost jobs over the past year, and the statewide unemployment rate remains well above the national average. The State’s labor force continues to decline, and that serves as a headwind for many commercial construction segments.
Some relief may be coming in the form of increased data center development activity, with several communities in Western Michigan currently considering data center developments. While that could help the industry at large, those projects tend to disproportionately benefit large contractors. According to ABC’s Construction Backlog Survey, 41% of contractors with more than $100 million in annual revenues currently have data center work, compared to just 8% of contractors with annual revenues below that threshold.
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