In March, the nonresidential construction sector witnessed a decline of 0.5%, adjusting to an annual rate of $1.25 trillion, as reported by the Associated Builders and Contractors (ABC) based on U.S. Census Bureau data. This downturn marks a retreat from February's record high, with spending dropping across most subcategories. Private nonresidential construction saw a decrease of 0.8%, while public spending fell slightly by 0.2%. Despite challenges such as borrowing costs and trade uncertainties, data centers remain a crucial driver for private construction growth.

The drop in nonresidential construction spending was widespread in March, following a peak in February, according to Ken Simonson, chief economist at the Associated General Contractors of America. Media reports indicate that owners are hesitant to initiate new projects due to tariff uncertainties, government funding issues, and policy disruptions. As current projects near completion, there could be several months of reduced construction activity. Manufacturing construction, which was a key growth area last year, also lost momentum in March.

Anirban Basu, ABC's chief economist, noted that the sharp decline in March affected nearly every private subsector. Data center investments have become one of the few remaining sources of industry momentum, accounting for a significant portion of the increase in private nonresidential construction spending over the past year. While public nonresidential spending has risen by 4.8% year-over-year, private spending increased only marginally by 1.6% during the same period.

Economic uncertainty is expected to persist, making a rebound unlikely in the coming months. Although contractors expressed optimism about future sales in March, sentiments may weaken as tariffs impact input prices and project viability. The overall U.S. economy contracted by 0.3% in the first quarter, largely due to increased imports ahead of Trump administration tariffs, marking the first contraction since early 2022.

The recent trends in nonresidential construction underscore a challenging environment shaped by economic volatility and policy uncertainties. With data centers providing some stability amidst widespread declines, stakeholders in the construction industry face critical decisions regarding future investments and project planning. The slowdown in both private and public sectors highlights the need for strategies to address ongoing market constraints and maintain steady growth despite external pressures.