In January, the construction sector experienced a mixed performance with commercial projects experiencing a slowdown while infrastructure development remained robust. Overall, construction starts declined by 6% to a seasonally adjusted annual rate of $1.1 trillion. Nonresidential building starts saw an 18% decrease, mainly due to reduced activity in office and hotel sectors. Residential starts showed a slight dip of 1%. However, nonbuilding starts, including highways, bridges, and utility plants, increased by 4%. Infrastructure-related projects provided stability, particularly with highway and bridge starts rising 14%. Major projects initiated in January included a $5 billion pediatric campus in Dallas and a $1.1 billion solar farm in Texas.

Commercial Construction Faces Challenges

The downturn in commercial construction was significant, with a notable 41% decline in commercial projects like offices and hotels. Manufacturing groundbreakings also fell by 16%, reflecting ongoing challenges such as labor shortages and high material costs. This trend is partly attributed to historically typical levels following robust data center starts in previous months. Most nonresidential sectors experienced weakness, contributing to the overall decline. The uncertainty surrounding tariffs and immigration policies further complicates project timelines, leading to slower movement through the planning stages.

Several factors have contributed to this slowdown. After a period of strong data center developments in November and December, office starts returned to more traditional levels in January. This shift significantly impacted the month-to-month decline. Additionally, manufacturing projects, which had been a bright spot earlier in 2024, saw a considerable drop. Labor shortages and elevated material costs continue to weigh heavily on the industry. Moreover, uncertainties around trade policies and immigration regulations add another layer of complexity, potentially delaying projects until the Federal Reserve resumes expected rate cuts later in the year.

Infrastructure Projects Drive Stability

While commercial construction faced challenges, infrastructure projects emerged as a stabilizing force. Highway and bridge starts surged by 14%, providing a buffer against the broader decline. Utility and gas projects also saw modest growth, although environmental public works dropped by 14%. Notably, nonbuilding construction posted a 17% gain year-over-year, driven by an 84% increase in utility and gas projects and a 10% rise in highway and bridge initiatives. Key infrastructure projects included the NHHIP road widening in Houston and the Ulana Ward Village Tower in Honolulu.

Despite the overall decline in construction starts, infrastructure-related activities stood out as a positive contributor. Highway and bridge projects, for instance, witnessed a substantial 14% increase in January, bolstering the sector's resilience. Utility and gas projects saw a marginal rise, though environmental public works faced a decline. Compared to January 2024, nonbuilding construction experienced a notable 17% gain, fueled by an 84% surge in utility and gas projects and a 10% boost in highway and bridge developments. Major projects breaking ground included the $696 million road widening in Houston and the $470 million Ulana Ward Village Tower in Honolulu, highlighting the continued importance of infrastructure investment in maintaining economic momentum.