Construction spending in the United States fell more than expected in March 2025, highlighting the mounting strain that high interest rates and macroeconomic uncertainty are placing on the sector. According to the latest report from Wells Fargo Economics, total construction outlays dropped by 0.5 percent in March, breaking a string of recent gains and raising fresh concerns about the momentum of both residential and nonresidential activity. The report underscores how weakening demand, rising costs, and tighter financial conditions are converging to slow the pace of building across much of the country.
Analysts point to a broad-based softening in construction activity. Residential construction spending declined by 0.4 percent in March, marking its first pullback in six months. The downturn was driven primarily by a 1.2 percent drop in private home improvement outlays, which had previously buoyed residential figures. While single-family construction still eked out a modest 0.1 percent gain, this represented the slowest monthly growth since August 2024, suggesting the sector’s momentum may be fading. At the same time, nonresidential construction spending fell by 0.5 percent, its weakest showing since October of last year, as both public and private investment slowed in the face of growing financial constraints.
In residential markets, the signs of deceleration are becoming harder to ignore. Although home improvement spending remains elevated—up 13.3 percent compared to a year ago—March’s decline hints at softening consumer willingness to invest in large-scale projects. The report also notes that single-family housing starts plunged 14.2 percent during the month, a sign that builders are beginning to feel the squeeze from rising costs and waning demand. According to a recent NAHB survey cited in the report, tariffs could add an average of $10,900 to the cost of building a single-family home, exacerbating affordability challenges and likely curbing future construction.
One relative bright spot is the multifamily segment, which appears to be stabilizing after a prolonged downturn. Apartment construction spending was flat in March following 15 consecutive monthly declines. Robust rental demand and easing supply pressures have begun to lift multifamily starts, offering a tentative signal that the segment may regain footing as the year progresses.
Nonresidential construction, however, continues to falter. March data showed a 0.5 percent monthly decline in overall nonresidential outlays, driven by softening in both public (-0.2 percent) and private (-0.8 percent) project categories. Nearly all major segments of private nonresidential spending—ranging from offices and healthcare to commercial and manufacturing—registered declines, reflecting the delayed impact of past monetary tightening.
While a few categories, such as transportation and amusement & recreation, managed to post gains, the overall tone was subdued. Of note, data center construction offered a sliver of strength with a 0.1 percent monthly increase. Despite the modest gain, spending on data centers remains up 33 percent year-over-year, underscoring continued investment in digital infrastructure amid broader construction headwinds.
Public sector construction spending also showed signs of strain. Declines in education, power, and highway projects more than offset gains in transportation, office, and water supply initiatives. Looking ahead, indicators from the architectural sector suggest further weakness may lie ahead. The AIA/Deltek Architecture Billings Index fell to 44.1 in March, indicating contraction at a majority of firms. More troubling was a second consecutive monthly decline in new project inquiries—a metric that had remained resilient despite higher borrowing costs in recent years.
Taken together, the March construction report from Wells Fargo Economics paints a picture of a sector grappling with tightening financial conditions, rising input costs, and uncertain demand. With interest rates still elevated and tariffs adding pressure to materials prices, both residential and nonresidential construction face a challenging road ahead. If broader macroeconomic conditions fail to improve, construction spending may continue to weigh on overall growth through the remainder of 2025.
