Nonresidential Is Growing Again — If You Subtract the Factories
July's construction spending reads flat. Underneath it, manufacturing is down 21% and the rest of nonresidential is quietly up 2.7%. Two different markets.
The July construction spending numbers landed and the headline is the kind that gets one paragraph in a trade newsletter and then nothing: total put-in-place at a $2,157.6 billion seasonally adjusted annual rate, down 3.8% from a year ago. Soft. Slightly worse than soft. Move on.
Do not move on. That headline is an average of two markets that are doing opposite things, and if you are bidding work this fall the difference between them is the difference between a full year and a scramble.
The number underneath
Split nonresidential into "factories" and "everything else" and the picture inverts.
Total nonresidential is $1,286.4 billion, down 1.3% year over year — call it flat. But manufacturing construction alone is $169.8 billion, down 21.2% from July 2025 and down 32.1% from its September 2024 peak of $250.2 billion. That is not a slowdown. That is the end of a build cycle.
Subtract manufacturing and the rest of nonresidential is up 2.7% year over year. (Census C30 via FRED)
So the honest sentence is not "nonresidential is flat." It is: nonresidential construction is growing modestly, and a single collapsing category is masking it entirely.
Where the growth actually is
Two categories are carrying it.
Office is up 16.9%, at $140.1 billion against $119.9 billion a year ago. Before anyone writes a think piece about the return of the office tower: the Census has published data centers as a series inside the private office category since the May 2024 release. Office construction is not recovering. Data center construction is inside the office line and it is very large.
Power is up 5.3%, at $181.5 billion — which is the same story wearing different clothes. You do not build that much compute without building generation, transmission and substations to feed it.
Everything else in nonresidential is flat to down: educational -0.6%, health care -2.4%, commercial -4.9%. And residential is down 7.3%, at $871.2 billion, which is the weakest line in the whole release outside of factories.
So the market is not "recovering." The market is rotating — out of the reshoring build-out and into the electricity-and-compute build-out, with the traditional commercial and institutional work roughly holding its ground while housing keeps sliding.
The part that decides your margin
Now put two other numbers next to it, because the spending figures are nominal.
The producer price index for construction materials was 374.0 in July 2026 against 338.6 a year earlier — up 10.5%. (BLS via FRED) And construction employment hit 8,359,000 in August 2026, a high for the series, up 120,000 from a year ago. (BLS via FRED)
Hold those together: nominal spending down 3.8%, input prices up 10.5%, headcount at a record. The materials PPI is an input-cost index rather than a proper deflator for put-in-place work, so I am not going to hand you a precise real-volume figure — but the direction is not ambiguous. Real construction volume is falling considerably faster than the 3.8% headline, and the industry is carrying more people than it did a year ago to do it.
That is the whole margin story in one line. More payroll, more expensive inputs, less real work. It is also, incidentally, why the leading indicator on the design side keeps reading the way it does — the AIA's Architecture Billings Index came in at 46.6 for July, released August 19, extending what the AIA describes as the longest slump in the index's history. (AIA/Deltek) Anything under 50 means billings contracted. That is the pipeline for work you would be bidding in twelve to eighteen months.
What I would do with this
I have watched enough cycles to distrust anyone who reads one monthly print as a strategy. But three things follow from this data that I would act on rather than think about.
Know which market you are actually in. If your backlog leans on manufacturing, you are down a third from the peak and the replacement work is not in your existing category. If you are near data centers, power, or the trades feeding them, you are in the one part of this market with a tailwind — and so is every competitor who noticed.
Assume the bid environment gets worse before the volume does. A shrinking real market with record headcount means firms bidding to keep crews together. That shows up as thinner spreads, more aggressive schedules and owners who have been told the market is soft. The margin is not going to come from the bid.
Which means it has to come from execution. When input costs run 10.5% ahead of a contract you signed at last year's pricing, the money is in the change orders you price correctly and collect, the float you do not silently give away, and the disputes you can document your way out of. Every one of those is a records problem before it is a money problem — and the difference between a change order that gets paid and one that gets argued is almost always whether the evidence was captured on the day it happened.
The headline number said the market was flat. It is not flat. It is two markets, one of them ending and one of them starting, and both of them squeezing the same margin from opposite directions.
Sources
- Total construction spending July 2026 $2,157.6B SAAR vs $2,242.6B July 2025 (-3.8%) — US Census Bureau C30 via FRED (TTLCONS) — source
- Residential July 2026 $871.2B vs $940.0B (-7.3%) — US Census Bureau C30 via FRED (TLRESCONS) — source
- Nonresidential July 2026 $1,286.4B vs $1,302.7B (-1.3%) — US Census Bureau C30 via FRED (TLNRESCONS) — source
- Manufacturing July 2026 $169.8B vs $215.6B (-21.2%); peak $250.2B in September 2024 (-32.1% from peak) — US Census Bureau C30 via FRED (TLMFGCONS) — source
- Office July 2026 $140.1B vs $119.9B (+16.9%) — US Census Bureau C30 via FRED (TLOFCONS) — source
- Power July 2026 $181.5B vs $172.4B (+5.3%) — US Census Bureau C30 via FRED (TLPWRCONS) — source
- Commercial July 2026 $122.5B vs $128.8B (-4.9%) — US Census Bureau C30 via FRED (TLCOMCONS) — source
- Health care July 2026 $74.6B vs $76.4B (-2.4%) — US Census Bureau C30 via FRED (TLHLTHCONS) — source
- Educational July 2026 $136.6B vs $137.5B (-0.6%) — US Census Bureau C30 via FRED (TLEDUCONS) — source
- Data centers published as a series under the Private Office category beginning with the May 2024 release — US Census Bureau — source
- PPI construction materials 374.039 in July 2026 vs 338.600 in July 2025 (+10.5%) — BLS via FRED (WPUSI012011) — source
- Construction employment 8,359,000 in August 2026, a series high, vs 8,239,000 in August 2025 (+120,000) — BLS via FRED (USCONS) — source
- Architecture Billings Index 46.6 for July 2026, released August 19, 2026 — AIA/Deltek — source