Construction spending across the U.S. slowed in the second half of 2025, but costs remain elevated and uneven across regions, according to Turner & Townsend’s recent market intelligence report.
While economic growth cooled and private construction pulled back, federally backed infrastructure, data centers, and trade‑driven supply chain shifts are keeping bid price escalation above historical norms — particularly in Phoenix, Arizona; Dallas‑Fort Worth, Texas; and San Francisco, California. According to the report, those three areas rank highest nationally for cost escalation pressure.
Key findings of the report include:
- 1.4 percent quarterly Gross Domestic Product (GDP) growth as of fourth quarter 2025 (annual rate)
- Minus 0.36 percent quarter-on-year construction spending growth as of December 2025
- 4.25 percent bid price inflation estimate for 2026
The report also found macro conditions softening. GDP growth slowed sharply in the fourth quarter; the February benchmark revision revealed far fewer jobs than initially reported, and the Fed has paused after 75 basis points of cuts with limited further easing expected.
The report also said:
- Construction spending remained weak throughout the second half of 2025, running 1 percent below year-ago levels by December.
- Private construction has been most impacted, declining nearly 3 percent year-over-year, while public construction posted full-year gains of 3.6 percent.
- Manufacturing construction accelerated its retreat, falling more than 11 percent year-on-year.
- Private — Drove the spending decline throughout the second half of 2025, dropping from $1.7 trillion seasonally adjusted annual rate (SAAR) in third quarter 2024 to $1.65 trillion in fourth quarter 2025, a 3 percent year-over-year drop in the third quarter and a 1.5 percent drop in the fourth quarter.
- Public — Provided some counterweight, expanding 4 percent year-on-year in third quarter 2025 and 3.5 percent in fourth quarter, reaching $521.7 billion SAAR in December 2025.
- Transportation — Rose 5.3 percent year-over-year to $68.9 billion, while power construction grew 5.8 percent to $162.4 billion, sustained by data center growth and grid modernization programs.
- Manufacturing — Remains the largest non-residential subcategory, but its retreat accelerated through 2025. Spending fell to $202.4 billion SAAR in fourth quarter 2025, down 11.4 percent year-over-year, the steepest annual decline of any major category.
- Healthcare — Edged down 1.4 percent to $68.7 billion.
- Office — Increased 2.4 percent to $107.6 billion, a modest but notable stabilization given persistent remote work headwinds.
- Amusement and recreation — Rose 6.1 percent to $44.4 billion, reflecting sustained investment in sports venues and entertainment districts.
- 2026 — 4.25 percent as tariffs and labor pressures persist
- 2027 — 4 percent as lending conditions stabilize and demand softens
- 2028 — 3.75 percent as infrastructure spending peaks and private construction remains subdued
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According to the report, total construction spending declined by about -0.36 percent in nominal terms year-over-year in fourth quarter 2025. After adjusting for cost increases, real output contracted further.
In specific construction sectors:
Looking ahead, Turner & Townsend said that public investment should help cushion the sector as infrastructure spending flows from federal programs. Private construction faces headwinds from elevated financing costs and manufacturing project slowdowns. Labor constraints persist despite softening demand, and the tariff landscape remains fluid.
Turner & Townsend expects bid price escalation to remain elevated but gradually ease:
The full report is available to read at marketintelligence.turnerandtownsend.com/usmi-h2-2025/.
Image courtesy of Turner & Townsend.
