The latest data on nonresidential construction spending reveals a tale of two markets. While public projects continue to see significant growth thanks to government investment, private sector activity is showing signs of weakness.

According to an analysis by the Associated Builders and Contractors (ABC) of U.S. According to Census Bureau data, overall nonresidential spending remained flat in May, dipping slightly by 0.1% to a seasonally adjusted annualized rate of $1.21 trillion. However, the story diverges when looking at public versus private investment.

Public Investment Leads the Charge

Publicly funded nonresidential construction saw a healthy increase of 0.4% in May, propelling the sector's overall performance for the year.  "Much of that progress is attributable to ongoing infrastructure investments," explained ABC Chief Economist Anirban Basu in a press release.  These investments include the $1.2 trillion Infrastructure Investment and Jobs Act and its subsequent legislation, such as the $52 billion CHIPS and Science Act.  Public project spending has surged by a remarkable 9.6% year-over-year, a clear indicator of the government's role in supporting the construction industry.

Lagging Private Sector Raises Concerns

In contrast, private nonresidential spending continues to lag, increasing at a rate of only 4.1% year-over-year.  Basu attributed this weakness to "interest rate-sensitive segments" like office and commercial spaces, which have also been impacted by shifting demand patterns in the post-pandemic world.  Spending in these categories declined by 0.3% in May.

Overall Growth Outpaces Broader Economy

Despite the divergence between public and private markets, the construction sector as a whole remains healthy.  Total construction spending, which includes both nonresidential and residential projects, has grown by a robust 6.4% year-over-year.  This significantly outpaces the Federal Reserve's July 1st estimate of 1.7% seasonally adjusted annual growth for the broader economy.

Data Center Boom: a Bright Spot in Private Market

While private nonresidential spending is a cause for concern, there is one bright spot: data center construction.  This category has seen a remarkable 69% increase in spending over the past 12 months.  The Associated General Contractors of America (AGC) successfully lobbied the Census Bureau to separate data center data from the overall office sector, revealing this significant growth.  "The overall private office category slipped slightly, but this hides a nearly 70% jump in data center construction," explained AGC Chief Economist Ken Simonson.

Positive Outlook Despite Challenges

Despite the slowdown in some private sectors, ABC reports that its members remain optimistic about the future.  A majority of contractors anticipate an increase in sales over the next six months.  While public investment appears to be the driving force behind the industry's current performance, the data center boom is a promising sign for continued growth in certain segments of the private market.