Construction Slowdown Looms, But Data Center Boom Masks Underlying Weakness

By Kathleen Cook – November 11, 2025

WASHINGTON – A recent report from the Associated Builders and Contractors (ABC) indicates a softening in the U.S. construction industry, with its Construction Backlog Indicator falling to 8.4 months in October. While not a drastic decline, coupled with slipping contractor confidence, the data signals potential headwinds for the sector. However, a closer look reveals a deeply bifurcated market – one where a booming data center sector is masking underlying weakness in other areas of construction.

According to ABC’s latest findings, nearly 65% of contractors believe the U.S. construction industry is contracting. This sentiment is reflected in declining expectations for profit margins and staffing levels, despite remaining optimistic overall. This divergence highlights a growing disconnect between broad industry perceptions and the performance of specific segments.

“The feeling on the ground is definitely shifting,” says one contractor based in the Southeast, speaking anonymously. “We’re seeing more competitive bidding and longer lead times on materials. It’s not a crisis yet, but you can feel the pressure.”

The Data Center Disconnect

The most striking aspect of the current construction landscape is the disparity between the struggles in many traditional sectors and the explosive growth of data center construction. Fueled by the insatiable demand for artificial intelligence (AI) and cloud computing, data centers are experiencing unprecedented investment and expansion. Global spending is projected to reach trillions of dollars by 2030, with the U.S. leading the way.

“Data centers are in a class of their own right now,” explains an industry analyst specializing in digital infrastructure. “The demand is so high, and the margins are so good, that projects are moving forward regardless of broader economic conditions.”

ConstructConnect data confirms this trend, showing that total data center construction starts reached a record $14.0 billion in July 2025. This surge is dramatically reshaping the construction landscape, accounting for a soaring percentage of new office construction spending.

The impact is evident in ABC’s own data: contractors specializing in data center projects report significantly higher backlogs (10.9 months) compared to those focused on other sectors (8.0 months). This suggests that while overall confidence may be waning, a segment of the industry is thriving.

Regional Hotspots and Emerging Trends

The data center boom isn’t evenly distributed across the country. Northern Virginia, Texas, and parts of the Southeast are experiencing the most rapid expansion, driven by strong power infrastructure and favorable regulatory environments. These regions are attracting massive investments from tech giants like Amazon, Microsoft, and Google, who are racing to build out the infrastructure needed to support AI workloads.

However, limited power availability in these core markets is creating opportunities in emerging hubs. Areas with access to renewable energy sources and reliable power grids are attracting new data center projects, spreading the growth beyond traditional hotspots.

“We’re seeing a lot of interest in areas like Arizona and North Carolina,” says another contractor specializing in data center construction. “They offer a combination of affordability, access to skilled labor, and reliable power, making them attractive alternatives to the more established markets.”

A Two-Tiered Market and Sustainable Growth?

The current situation is creating a two-tiered construction market. While data center contractors enjoy robust demand and healthy margins, those focused on other sectors – such as residential housing, commercial offices, and infrastructure projects – are facing increasing challenges.

The National Association of Home Builders (NAHB) offers a contrasting view, reporting an increase in builder confidence for October, suggesting a potential recovery in the residential sector. However, this positive sentiment is tempered by ongoing affordability concerns and a reliance on price incentives to drive sales.

The long-term sustainability of relying heavily on the data center sector for overall industry growth remains a question. While the demand for AI and cloud computing is expected to continue growing for the foreseeable future, there are risks associated with overbuilding and potential market saturation.

“The growth we’re seeing in the data center sector is extraordinary, but it’s not necessarily representative of the broader economy,” cautions the industry analyst. “We need to be careful not to become overly reliant on a single sector, as that could leave us vulnerable to future downturns.”

Looking Ahead

The U.S. construction industry is at a pivotal moment. The combination of slowing overall growth, a booming data center sector, and regional disparities creates a complex landscape. Contractors will need to adapt to these changing conditions by diversifying their portfolios, investing in new technologies, and focusing on sustainable building practices.

The industry’s future will likely depend on its ability to balance the demands of the digital age with the need for resilient and sustainable infrastructure. The data center boom may provide a temporary buffer, but it’s not a substitute for a healthy and diversified construction economy. The coming months will reveal whether this growth is sustainable or simply a fleeting moment in a changing industry.