U.S. construction market data tells two stories.

New construction starts fell 20% month over month in June, on the heels of a 33.5% gain in May. The surge was attributed to large projects within healthcare, manufacturing, utilities and data centers, according to a recent Cushman & Wakefield report.

At the same time, “construction activity remains uneven across sectors,” Cushman & Wakefield said. While data centers and energy-related projects are responsible for construction growth, “weakness in the residential and institutional sectors remains.”

In May, nonresidential building starts increased 17.8%, while nonbuilding starts jumped 91.9%. A month later, those categories fell by 9.1% and 37.7%, respectively.

Uneven Backlogs

The takeaway isn’t simply that construction is volatile. Rather, a relatively small number of enormous projects can increasingly move the industry’s headline numbers, with data centers creating a divide in contractor backlogs.

In quoting the Associated Builders and Contractors (ABC), Cushman & Wakefield said that backlogs for commercial and institutional projects were at 8.9 months in June. At the same time, the infrastructure segment reported a 10.1-month backlog, representing a 7.9% increase from the year before.

The ABC reported a backlog of 11 months for data center construction projects, versus the 8.5-month backlog for projects without the exposure, “underscoring the sector’s outsized influence on overall pipeline strength,” Cushman & Wakefield said.

Speaking of which, that strength isn’t necessarily spreading throughout the construction pipeline.

The American Institute of Architects’ Commercial/Industrial Architectural Billings Index, which tracks demand for design services at architecture firms and forecasts nonresidential construction activity up to 12 months in advance, came in at 46.7 in June, below the breakeven mark of 50. The report said that the index was below 50 in nine of the past 10 months.

Such activity “is likely to remain soft into early 2027,” Cushman & Wakefield said. “The outlook remains highly sensitive to interest rate cuts and trade policy.”

Labor and Confidence

Construction executives appear to recognize the split. Cushman & Wakefield said that ENR’s Construction Industry Confidence Index held at 54 in the second quarter, indicating slight optimism. Yet executives “continue to characterize the broader market as fragile, with strength concentrated in data centers and energy,” the report said.

Cushman & Wakefield said it anticipates construction sentiment will remain at a neutral-to-slightly optimistic level until costs ease or interest rate cuts occur.

Labor Remains Limited

Construction employment reached 8.322 million in the second quarter, up 0.6% year over year and near record levels. JOLTS data showed construction job openings, hirings and quits increasing month over month by 4.8%, 14.5% and 19.2%, respectively.

Yet, the JOLTs data “reinforces the bifurcation thesis rather than a broad, imminent squeeze,” Cushman & Wakefield said. Specifically, a narrow set of construction segments is absorbing labor demand that would otherwise support openings, hires and quits.

The outlook is an increase in construction employment through Q3 before contraction sets in. Additionally, “a thinning project pipeline in several traditional non-residential segments is expected to weigh on labor demand,” the report said.

The Takeaway

Simply looking at the headlines shows robust construction numbers. However, the sector isn’t strong or weak. What is true is the type of asset being built and which part of the market a contractor, developer or investor is active in.

As such, headline numbers can still be healthy. However, on closer inspection, the activity is increasingly divided between high-demand projects and those waiting for investment, financing and economic conditions to stabilize.

Photo: sommart sombutwanitkul/Shutterstock

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