Construction spending indicators weaken: Part 2

Design activity softens ahead of building spending measures

The ABI remained below its expansion threshold throughout the first seven months of 2026, suggesting softer design activity for projects that could move into construction later.

The headline index averaged 46.6 from April through July, compared with 45.9 during the same period in 2025. Still, the 2026 average remained below 50, which indicates declining billings at more architecture firms than increasing billings. The reading also came in below the 47.7 average for Q1 and continued at a reading of 46.7 through the month of July.

In other words, the index remained in contraction throughout Q2 despite high planning values and construction starts.

April briefly offered a firmer industry mix. Multi-family residential reached 51.5 and institutional reached 51.1. By May, every industry specialization was below 50. Commercial and industrial billings remained below 50 through July.

The regional data was also uniformly below expansion from April through July. The South stayed closest to 50 for much of the period. July readings ranged from 44.8 in the Northeast to 48.7 in the South.

Project flow weakened beneath the billing figures as well. Architecture firm backlog fell to 6.3 months in Q2 from 6.6 months in Q1. Small firms saw a larger decrease, while multi-family specialists also worked down backlog.

New design contracts came close to flat in June before declining again in July, even as inquiries continued to rise. By July, all industry specialization and all regions still reported billings below 50.

Note that ABI measures the share of architecture firms reporting higher or lower billings. A limited number of very large projects can support the value-based planning index while many firms still report declining business.

Construction activity data shows private spending decline

As measured by the US Census Bureau, construction spending moved in the opposite direction from Dodge starts during Q2. Total construction spending average 3.7% below Q2 2025, after running essentially flat year over year in Q1.

Residential spending fell 5.2% in Q2. Non-residential spending declined 2.7%. The deterioration was concentrated in private spending, as opposed to public spending.

Private construction accounted for about 75% of total spending during each month of Q2. It averaged 5.2% below Q2’25. Public construction, which represented about one-quarter of the total, increased only 0.8%.

Part of the difference comes from timing. Dodge starts measure projects as they begin construction, while Census spending measures the value of work put in place as projects progress.

The difference in directional trends between Dodge starts and Census construction spending reflects what undergirds each data series. Residential work represented slightly more than half of total private construction spending in Census data. Meanwhile, residential projects accounted for only about 24% of Dodge starts from April through July. The starts measure carried considerably more exposure to the large non-residential and non-building projects that drove 2026 growth, while weakness in private residential construction spending weighed more heavily on Census spending.

Manufacturing drove much of the non-residential construction spending decline. Across Q2, manufacturing spending averaged about $52 billion below the prior-year level, a 23.3% decline. The loss was larger than the roughly $36 billion net decrease in total non-residential spending.

Other large categories offset a meaningful portion of that drop. Office spending averaged 12% above Q2’25 and added roughly $14.6 billion. Power added another $8.4 billion, with average spending up 4.9%.

Costs rise as nominal spending falls

There’s another measure of the decline in nominal spending.

Separate from the Census Bureau, the US Bureau of Labor Statistics (BLS) construction materials index was 6.6% above the prior year in April and 5.8% higher in May. The increase accelerated to 8.9% in June and 10.5% in July.

A labor-cost proxy derived from BLS construction industry data also remained higher. Multiplying average hourly earnings by average weekly hours worked provides an estimate of average weekly earnings per construction worker. That measure increased 5.7% year over year in April, 5.8% in May, 6% in June and 6.3% in July.

Neither the materials index nor the derived labor cost proxy provides a direct measure of real construction spending.

Still, declining nominal spending alongside rising construction material and labor costs suggests the underlying volume of construction activity was weaker than the dollar figures alone indicate, to the extent those cost increases passed through to project values.

Large projects lift headlines as broader measures soften

The updated US construction spending indicators change the Q1 reading in an important way.

Early in 2026, leading measures looked stronger than current spending. By midyear, some of those leading measures had also lost momentum.

DMI remained high, but its year-over-year advantage nearly disappeared by July and reversed in August. ABI stayed below 50. The contractor backlog dropped sharply in July, and most contractor size groups remained below prior-year levels.

At the same time, Dodge construction starts were substantially above 2025. The dollar increase came mainly from nonresidential and nonbuilding work, with month-to-month results heavily affected by large projects. Data center exposure also continued to separate contractor backlog from conditions reported by most ABC members.

Census spending provides the most direct measure in this group of work being put in place. Q2 spending fell year over year, led by the much larger private market. The decline occurred while material costs and the labor-cost proxy remained above prior-year levels.

The market was not uniformly weak. Heavy industrial backlog remained far above 2025, while office and power spending increased. Institutional planning also rose steadily each month from April through August.

Still, the US construction spending indicators show a wider separation between large-project activity and broader design and spending conditions. Large projects continue to carry an outsized share of reported activity, while design billings and private construction spending remain softer.