Groundbreaking ceremonies are increasingly tied to one type of build.
While construction’s latest economic data showed higher backlog and starts numbers, the primary driver of that growth has been data center projects. Those projects raged on despite higher input prices.
But planning activity mostly slipped for other builds and hiring among construction firms slowed to start the year too.
From those results, a consensus has emerged: Take away the artificial intelligence buildout, and construction’s economic outlook appears weaker. That’s the view from economists summing up the sector’s prospects with one quarter of 2026 in the rear view.
“This is a sign of a slowdown,” said Adam Raimond, program manager for cost indices at Gordian, a Greenville, South Carolina-based construction data provider. “The fact that most of the growth is coming off of only data center construction is a sign that the industry is in a fragile position.”
Indeed, contractors with data center work have about four months more backlog than other firms, according to Moody’s. That’s a major boon for those companies, given that the producer price index is elevated and trending upward, said Ermengarde Jabir, director of economic research at Moody’s. Strong bookings allow firms to plan around cost increases, even as they keep going up.
“I know a lot of you out there with data center work are concerned that this boom is going to end, and it probably will end at some point. But not now.”
Anirban Basu
chief economist at Associated Builders and Contractors
“Broadly, data center development, in all of its phases, is the main driver behind any observed overall improvements in construction metrics, whether looking at planning, groundbreaking or backlogs,” said Jabir. “Those contractors have more existing contracts for work and are better able to plan around construction cost considerations over a longer horizon.”
Construction input prices jumped at a 12.6% annualized rate during the first two months of 2026. Those levels are now not far off from their June 2022 peak. Increases to materials costs also aren’t likely to abate anytime soon, said Juan Arias, national director of U.S. industrial analytics at CoStar.
“Increases in raw material costs and transportation costs will likely continue to drive cost inflation for construction projects,” Arias told Construction Dive. “Data center construction costs are also likely to continue rising as electrical components become harder to find.”
The fact that the data center boom is having an outsized impact on the industry as a whole isn’t necessarily news. But what may be surprising, according to economists, is that investments around AI still have much more runway.
“Last year, hyperscalers in the aggregate spent around $450 billion on AI infrastructure, and the latest projections suggest that number could reach as much as $700 billion to $725 billion this year,” said Anirban Basu, chief economist at Associated Builders and Contractors, during a construction economic data webinar on Wednesday. “I know a lot of you out there with data center work are concerned that this boom is going to end, and it probably will end at some point. But not now.”
Work outside data center projects
For contractors focused on traditional commercial construction, such as office and retail, demand has cooled or failed to recover to prior levels, creating a dynamic of haves and have nots in the business. And other sectors are feeling pain, too, said Arias.
“We continue to see a moderation in construction starts across all major property types as of the latest quarter,” Arias told Construction Dive. “This is driven by a pullback in developer interest as demand and rent gains have waned, particularly for multifamily and logistics properties.”
Industrial construction, for example, has faced significant deceleration.
“For industrial properties specifically, we continue to see a moderation in logistics construction activity, while the specialized sector has seen a rise,” said Arias. “The specialized sector includes data centers, and the bulk of new construction here is driven by this subtype.”
That dynamic has pushed overall construction pipelines lower. Total square footage under construction across major property types has fallen back to levels last seen in 2016. The drop follows a surge between 2022 and 2024, according to CoStar data.
Jabir agreed that construction’s prospects, outside the data center frenzy, are much more contained.
“Whether examining nonresidential construction or multifamily construction, the outlook is quite muted at the moment and very geographically dependent,” said Jabir. “Only modest new completions are expected for office and retail, primarily centered on employment and population hubs with growth prospects or established employment centers.”
Issues around trade policy are also still weighing on both jobsites and planning desks. Taken together, it adds up to an industry with a flatter trajectory across most segments. At the same time, the ride some contractors are enjoying on construction’s one-trick pony — data centers — is unlikely to last forever.
“Across all sectors, 2026 will herald more of a stabilization in construction, and normalizing conditions will help mitigate some of the pressures contractors have faced from elevated labor and materials costs,” said Jabir. “While steady growth of data center usage is expected over both the short and long terms, the boom period of exponential growth to data center expansion is neither sustainable nor long-lived.”
