It’s a good time to be a contractor with data center work. For everyone else, the picture is less sunny.
“This year has been particularly volatile,” Michael Guckes, chief economist at ConstructConnect, told Construction Dive. “The subcategories a firm chooses to compete in may be one of the most important factors in its present and near-future success.”
Total construction starts tumbled in August after a jump in massive data center and manufacturing projects boosted activity in July, according to Dodge Construction Network. The month-to-month whiplash has become a feature of the construction economy due to megaprojects, said Guckes.
Projects valued at more than $1 billion now consume about one of every four dollars spent on nonresidential construction, Guckes said.
“To a degree not previously experienced, traditional indicators are being swayed more by large project construction timing and peculiarities than from broad economic indicators,” said Guckes. “These large projects are driving much of the volatility we are seeing in the industry and in part why indicators are pointing in different directions.”
For example, construction backlog rebounded in August, though contractors with data center awards still hold substantially more work than those without it. The dynamic shows large firms capable of winning megaprojects have fared better than smaller firms outside the boom.
Where activity is
Much of the activity centers on digital infrastructure and ancillary projects around the boom, said Juan Arias, national director of U.S. industrial analytics at CoStar.
“The construction market appears strong in areas connected to infrastructure, power, advanced manufacturing and data centers,” Arias told Construction Dive. “Other segments are contributing less to overall growth.”
In manufacturing construction, for example, total work in the sector has pulled back from the 2024 and 2025 highs, according to Arias. However, in the digital portion of the manufacturing sector, such as semiconductor projects, growth has increased over the past year. Other areas of manufacturing construction, such as chemical and automotive production, remain below year-ago levels, he said.
“What stands out the most is the concentration of growth in construction and manufacturing around digital infrastructure and power-related investments,” Arias told Construction Dive. “Growth is being driven primarily by investment tied to semiconductors, communications equipment, electronics, electrical infrastructure and data centers.”
Costs are a threat
But a couple of indicators offered potential warning signs in August.
Data center planning cooled month over month in August, according to Dodge Construction Network. Contractors also face a less favorable cost environment which economists expect to get worse later in the year.
“The cooldown wasn’t completely out of left field,” said Adam Raimond, program manager at Gordian, a Greenville, South Carolina-based construction data provider. “[It] may be leaving some worried about where continued activity will come from if it’s not from data center growth.”
Construction input prices jumped 1.2% month over month in August and now sit about 8.9% higher than August 2025, according to an analysis from Associated Builders and Contractors. Metal and petroleum products posted some of the largest year-over-year price increases. Switchgear and copper wire also posted meaningful increases.
“The overall health of construction right now doesn’t feel as steady as it did at the start of the year,” said Raimond. “Most of the year so far has seen continuous spikes in costs in several sectors, so the instinct is to believe that could continue to close out the year.”
Higher costs rank high on the list for potential headwinds for contractors, including those with strong backlog, added Guckes.
“Margin protection is the key,” Guckes told Construction Dive. “Labor shortages, volatile material prices and supply chain difficulties are present risks to successful project management and margins.”
