Non-residential spending contracts 0.6% in December as materials exposed to rates rise January entry prices

Nonresidential construction spending fell 0.6 percent in December, and manufacturing and water supply fell 2.5 percent for the month, according to U.S. Census Bureau data analyzed by Associated Builders and Contractors.

The manufacturing industry recorded the most pronounced losses. At a seasonally adjusted annual rate of $202.4 billion in December, manufacturing-related construction spending is down nearly 16% from its all-time high in August 2024, according to census data analyzed by ABC. Anirban Basu, ABC’s chief economist, sees little short-term relief.

“Given trade policy uncertainty and the trickle-down effects of the CHIPS Act, manufacturing-related spending is likely to continue to decline over the coming quarters,” Basu said in a statement.

The slowdown was not limited to industrial work. “Eight out of 11 private non-residential sub-segments contracted in December, and total private non-residential spending is now down 1.8% year-on-year,” Basu said. “Given this weakness, it’s no surprise that the ABC’s construction backlog gauge fell to a four-year low in January.”

Water supply and manufacturing declined 2.5% in December, the steepest monthly declines among the major segments. Energy was the most notable improvement, up 0.8% for the month and 5.8% year-on-year.

The decline in spending in December contrasts with renewed movement on the cost side.

Material prices rise in January

Construction input prices rose 0.7 percent in January, an annualized pace of 7.1 percent, according to ABC analysis of the U.S. Bureau of Labor Statistics’ producer price index data released the same day. Non-residential construction input prices rose 0.6% for the month and rose 2.9% year-on-year.

Construction input prices rose 0.7 percent in January, while nonresidential inputs rose 0.6 percent, led by gains in copper wire and cable, iron and steel and steel products, according to U.S. Bureau of Labor Statistics data analyzed by Associated Builders and Contractors.

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Copper wire and cable led commodity gains, rising 5.0% in January and 27.3% over the past year. Iron and steel rose 2.2% for the month and 15.5% year-on-year. Softwood rose 3.9% in January, although it remains at 2.8% compared to the previous year. Natural gas prices fell 2.9% during the month.

Basu cautioned against over-interpreting the monthly increase, attributing much of the increase to products affected by the tariffs. “While this strong monthly increase can be attributed to significant increases in the prices of tariff-affected products such as copper wire and cable, iron and steel and industrial control equipment, the escalation in aggregate prices is not of particular concern at this time,” he said. “Non-residential materials prices have risen just 2.9% over the past year and have been virtually flat over the past few months, rising just 0.2% since September, despite some large monthly fluctuations.”

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“Trade policy may continue to put upward pressure on certain input prices, particularly those subject to large Section 232 tariffs,” Basu said. “Still, input escalation is unlikely to increase too sharply as long as energy prices remain tame and demand remains subdued.”

Contractor sentiment reflects this measured view. Profit margin confidence improved in January according to the ABC’s construction confidence index, although it remains below year-ago levels.

The divergence between demand moderation and selective cost spikes may complicate project estimation, but does not yet indicate a broad inflation cycle.