According to Construction Dig, citing analysis from the Associated Builders and Contractors (ABC), private nonresidential construction spending fell for the fourth consecutive month in January 2026, dropping 0.4% and landing 8% below the all-time high set in December 2023. The headline number for total nonresidential spending looked stable at a seasonally adjusted annual rate of $1.245 trillion, based on U.S. Census Bureau data, but that surface calm masks a sector under real pressure.
Background
The stable top-line figure is largely a result of public construction carrying the load. Public nonresidential spending rose 0.6% in January, cushioning the ongoing contraction in private activity. But that cushion only goes so far. Spending declined in nine of the 16 nonresidential subcategories during the month, a breadth of weakness that signals this isn’t a one-sector problem.
The biggest drag has been manufacturing construction, particularly computer and electronic facilities. According to ABC chief economist Anirban Basu, spending in that segment has plunged nearly 40% over the past 18 months as projects funded by the CHIPS Act near completion. The federal legislation that triggered a historic wave of semiconductor and electronics facility construction is now winding down, and there’s no comparable pipeline of new manufacturing projects ready to take its place.
The ABC Construction Backlog Indicator showed a slight uptick in February, gaining 0.1 months, but it’s recovering from a four-year low set in January. That’s not a recovery, it’s stabilization at a weak level.
Analysis
The core issue here is a structural transition, not a cyclical blip. The CHIPS Act construction boom was a unique, policy-driven surge. Semiconductor fabs and advanced electronics facilities require massive, specialized builds, and a lot of that work is now done. There’s no equivalent policy spending program ready to replace that volume in the private manufacturing segment.
What makes this cycle particularly tricky for contractors is that the headline number hides the pain. A $1.245 trillion annual run rate sounds like a healthy market. But when nine of 16 subcategories are shrinking and your backlog is near a four-year low, the competition for available work intensifies. That means tighter margins, longer bid cycles, and more aggressive pricing from competitors who are hungry for volume.
ABC has flagged that ongoing trade policy uncertainty and tariff exposure are expected to push materials costs higher and increase uncertainty in supply chains. For subcontractors pricing jobs in the second and third quarters of 2026, materials escalation clauses and tighter procurement timelines will matter more than usual. Locking in material pricing early, particularly for steel, copper, and electrical components, could be the difference between a profitable job and a money-loser.
Basu’s comment that it “may be a difficult first half of 2026 for many contractors” is worth taking seriously. Chief economists at trade associations tend to understate bad news, not overstate it.
The one genuine bright spot in private nonresidential is data centers. Spending in that category grew another 2% in January and has been one of the only consistent growth sectors in the private market. Demand tied to artificial intelligence infrastructure and digital expansion is real and ongoing. The buildout of hyperscale and edge data center facilities is concentrated in specific regions, including Texas, northern Virginia, Arizona, and the Pacific Northwest, but the ripple effects for subcontractors extend broadly through electrical, mechanical, civil, and specialty trades.
Public construction is the other pillar holding this market up. Highway, transportation, education, and government facility work is still moving, backed by federal infrastructure spending that predates the current economic uncertainty. For subcontractors who’ve traditionally focused on private commercial work, the public sector deserves a harder look right now.
What It Means for Subcontractors
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Chase data center work aggressively. Electrical, mechanical, HVAC, fire suppression, civil grading, and concrete subcontractors all have a role in data center construction. If you’re not already pursuing this sector, develop relationships with the general contractors who specialize in it. Texas and the Gulf Coast remain active markets.
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Get qualified for public work if you aren’t already. Public nonresidential is growing while private shrinks. Obtaining SAM.gov registration, relevant bonding capacity, and certifications for public bidding (including DBE or SBE status if applicable) opens doors that private-market slowdowns can’t close.
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Price materials risk carefully. With ABC warning of rising costs tied to trade policy uncertainty, fixed-price bids on longer-duration projects carry real exposure. Review your contract terms and consider escalation provisions for materials-intensive scopes.
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Expect tighter competition on private commercial bids. More contractors chasing fewer private jobs means compressed margins. Know your cost floor before you bid, and don’t chase volume at a loss.
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Monitor backlog closely. The ABC Construction Backlog Indicator is a useful leading signal. At near four-year lows, it suggests that the slowdown in new awards is already working its way through the system. Plan your workforce and equipment utilization accordingly for a potentially slow first half.
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Evaluate your manufacturing client exposure. If a significant share of your revenue has come from semiconductor or advanced manufacturing facility construction over the past two years, now is the time to diversify. That work is not coming back at the same pace.
