The latest federal economic report for November 2025 highlights a mixed performance in the construction sector. While overall spending remained flat compared to October, it showed a modest 3% increase from the same period last year. The sector's sensitivity to interest rates and market expectations of prolonged high borrowing costs have contributed to its tepid growth. However, certain areas like residential renovations and manufacturing construction experienced notable advancements. Residential building, particularly single-family homes, saw an 8% rise in spending year-to-date, while multi-family construction declined by nearly 6%. Non-residential projects, especially in manufacturing and data centers, witnessed significant surges driven by federal investments and technological demands.

Residential Construction: A Tale of Two Markets

The residential construction landscape presents contrasting trends between single-family and multi-family projects. Single-family homebuilding has demonstrated resilience, with spending increasing by approximately 8% year-to-date through November. This robust performance can be attributed to homeowners' willingness to invest in existing properties, driven by discretionary income. Conversely, multi-family construction has faced challenges, experiencing a decline of nearly 6%. High interest rates have deterred builders from initiating new projects, despite strong rental demand. Experts predict that rental inflation will likely rise this year, further impacting the housing market.

Ken Simonson, chief economist at Associated General Contractors of America, noted that homeowners are channeling their discretionary funds into home renovations. This trend has fueled a boom in home improvement activities, as people prefer upgrading their current living spaces rather than moving. Gary Schlossberg, a global strategist at Wells Fargo Investment Institute, added that while demand for rental units remains robust, builders are cautious due to elevated borrowing costs. This dichotomy within the residential sector underscores the complexity of market dynamics influenced by both consumer behavior and economic policies.

Non-Residential Construction: Manufacturing and Data Centers Lead the Way

In the non-residential domain, manufacturing and data center projects have emerged as key drivers of growth. Manufacturing construction surged by double digits year-over-year, with one-fifth of all non-residential spending directed towards large-scale facilities producing semiconductors, electric vehicles, and batteries. Federal investments from the Inflation Reduction and CHIPS Acts have significantly propelled these developments. However, concerns loom over potential cuts in government spending under the incoming administration, which could reverse some of these gains.

Data centers, another burgeoning area, recorded a remarkable 43% increase year-over-year. The escalating demand for energy and processing capacity, fueled by advancements in artificial intelligence (AI), has spurred this growth. Ken Simonson highlighted that the appetite for data centers shows no signs of waning, although local opposition to their construction is growing. Communities are increasingly voicing concerns about the visual impact of these large structures, presenting a challenge for developers. Despite these hurdles, the non-residential construction sector continues to thrive, driven by technological innovation and strategic federal investments.