California Construction News staff writer
U.S. construction spending put in place is projected to fall 1.3% to $2.214 trillion in 2026 as a steep slump in manufacturing construction and high borrowing costs drag down overall activity, according to a new report from Raleigh, NC-based management consulting firm FMI.
The third-quarter edition of FMI’s 2026 North American Engineering and Construction Outlook shows a sharp divide across key market sectors, with public infrastructure and data centers serving as rare bright spots in a late-cycle economic environment.
FMI’s updated figures reflect the U.S. Census Bureau’s July 1 benchmark revision, which amended annual construction spending metrics for 2024 and 2025. Under the revised historical baseline, 2025 aggregate construction spend held essentially flat rather than declining, shifting the pullback into 2026.
Excluding manufacturing, total construction spending in the U.S. will post a modest increase this year. However, manufacturing construction is projected to tumble 17.4% to $178 billion — a drop of roughly $38 billion from FMI’s previous quarterly outlook.
“The semiconductor fabs and battery plants that started between 2022 and 2024 are moving past their heavy-spending construction phases, and few new projects at a similar scale are starting behind them,” FMI analysts noted in the report, citing Census data showing year-to-date manufacturing spending down 22%.
Elevated borrowing costs continue to press on residential real estate. Single-family home construction is forecast to drop nearly 4% to $409 billion in 2026. With 30-year fixed mortgage rates remaining above 6.5% and builder sentiment falling to a 2026 low of 34 on the National Association of Home Builders’ (NAHB) Housing Market Index, homebuilders are relying heavily on price cuts and incentives to move inventory.
Multifamily construction is expected to edge down less than 1% to $127 billion as a two-year pipeline correction reaches its floor, before returning to growth in 2027. The single area of residential growth is home improvements, projected to rise 5.1% to $404 billion as homeowners tap home equity lines of credit to fund renovations. FMI cautioned, however, that with construction cost inflation running between 5% and 7%, much of that financial gain reflects higher prices rather than real volume expansion.
In nonresidential building, office spending is slated to grow 2% to $124 billion, though that aggregate masks a structural shift: private data center construction is surging 21.4% to $60 billion, offsetting continuous declines in traditional commercial office space. CBRE data cited in the report shows hyperscalers absorbing over 2.2 gigawatts across top North American markets in the first quarter, leaving Northern Virginia data center vacancy at a record low of 0.3%.
Civil infrastructure continues to provide stability. Nonbuilding structures are forecast to grow 2% to $431 billion, led by a 13.1% surge in conservation and development projects driven by U.S. Army Corps of Engineers civil works. Power construction is projected to expand 2.1% to $176 billion this year — restrained by long lead times for gas turbines and large transformers — before accelerating to 8.1% growth in 2027.
Macroeconomic pressures, including 7.6% year-over-year input price inflation recorded in June, trade tariffs, and persistent labor shortages, continue to squeeze contractor margins.
“Based on these trends, companies will clearly benefit from being selective about work taken and strategic about the sectors in which they choose to operate,” the report concluded.
For a closer look at these market dynamics and executive commentary on project pipelines, watch 2026 North American Engineering & Construction Overview: First Quarter.
This video is relevant because it features FMI leadership detailing sector-by-sector construction spending trends and growth projections across North America.
