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April 1, 2025

Construction spending jumped 0.7% in February, more than reversing January’s 0.5% decline, which was revised even lower. Spending rose 2.9% compared to a year ago. The data are not adjusted for inflation. Input costs for construction industries, excluding labor costs, moved up 0.3% from a year ago in February with lower energy prices bringing down overall costs. The full force of new tariffs has yet to be recorded in the producer price index (PPI).

The PPI is recorded on the 11^th of each month. In February, the additional tariffs on China of 10%, the tariffs on Canada and Mexico of 25% and the tariffs on all steel and aluminum of 25% had not come into effect. Futures prices had risen even before the tariffs were enacted. Steel mills raised the price for hot-rolled coil to $950 per ton in February, about a 50% jump from January. Lumber prices have risen 8% over the same period. The 25% tariff on autos and auto parts will not show up directly in the PPI but will impact the construction industry due to its heavy reliance on trucks manufactured in Mexico and Canada, which make up about one-third of overall new vehicle demand. More price pressures are expected as the tariff announcements and retaliation from trade partners continue.

Private residential construction spending soared 1.3% in the month. Single-family construction held the same pace as the prior month at 1.0% while multifamily construction was flat. Mortgage rates have fallen from their high of 7% in January but remain stubbornly above 6.5%. That helped release some sidelined demand but affordability remains challenged. Home builders are pessimistic over tariffs, the impact on building costs and the hit to price-conscious consumers. According to the National Association of Home Builders, tariffs could pose a $9,200 cost increase to build a new home from recent tariff actions alone.

Private nonresidential construction grew 0.4% in February as all categories except lodging were either flat or gained for the month. Concerns over discretionary travel mount as consumer sentiment has soured in recent weeks. Data center construction continues to outperform, rising 1.7% on the month.  Manufacturing facilities construction eked out a 0.1% gain while computer and electronics manufacturing fell 0.7%.

Public construction spending, most of which is done by state and local governments, rose 0.2% for the month. Highway and street construction, the largest category of spending, grew 1.2%. Federal spending turned sharply lower at -1.6%.