In today’s construction news, learn about today’s release of the U.S. report on construction spending for June, which revealed a 0.3% decrease, just missing the -0.2% drop that economists had predicted. On the other hand, after years of rapid expansion, the industrial real estate market in the United States is beginning a new period of equilibrium.
June Construction Spending in the US Drops 0.3%, Slightly Worse Than Anticipated
Original Source: U.S. Construction Spending Declines 0.3% in June, Slightly Worse Than Expected
Today’s June U.S. construction spending report indicated a 0.3% drop, just missing economists’ predictions of a 0.2% drop. This small miss highlights construction sector volatility, an important economic indicator, and has significant consequences for equity and fixed income investors.
Introduction
The U.S. Construction Spending MoM report influences Federal Reserve policy and sector-specific equity performance as a leading indication of economic activity and infrastructure investment. Today’s data supports fears about decreasing construction activity as the economy shows uneven growth and cooling demand. Analysts expected a -0.2% reduction, but the -0.3% result suggests sector-specific issues.
Data Overview and Context: U.S. Construction Spending (MoM)
Reading: -0.3% (June 2025)
The consensus is -0.2%.
Historic Average (2020-2024): +0.4%
Source: US Census Bureau.
Despite moderate advances in public infrastructure (+0.5%), private residential building fell 0.8% MoM. The difference is due to home affordability and federal financing delays for public projects. Analysts say continued weakening could indicate an economic slowdown, postponing Fed rate hikes.
Driver and Implication Analysis
The June report shows a changing sector:
Private Residential Construction: Down 0.8% MoM due to rising mortgage rates and decreasing house demand. Spending is down 3.5% year-over-year as affordability forces buyers to rent.
Nonresidential Construction: Flat MoM, with manufacturing investment—the sector’s backbone—down over 5% from August 2024. Only data center development (+1% MoM) grows.
Public Infrastructure: Up 0.5% MoM, but bureaucratic delays. State and municipal governments are strapped, while federal initiatives are underfunded.
SPY Trend
Federal Reserve Policy Implications
The Fed tracks construction spending to evaluate inflation and demand. A poorer result may lower rate hike expectations, benefitting bond markets but affecting the central bank’s inflation targeting.
Market and Investment Impact
Equities: Industrial conglomerates slid 1.2% post-report, bucking sector backtest tendencies, while food products surged 0.8%. Historical discrepancies may indicate consumer priorities or short-term oddities.
Due to Fed rate-cut wagers, Treasuries rose, lowering the 10-year yield to 4.65%.
Recommendation:
– Equities: Underweight construction equities like Caterpillar CAT and Beazer Homes BZH until data stabilizes.
– Fixed Income: Consider TLT short-term Treasury exposure amid yield falls.
Some alternatives: If public investment increases, watch infrastructure REITs like Infrastructure Capital Corp INFRA for long-term prospects.
Ending and Reflections
June’s construction data shows sector fragmentation and weakening demand, affecting Fed policy and stock allocation. Investors should focus on defensive sectors and wait for August’s report. Labor shortages, supply chain constraints, and fiscal policy uncertainty must be addressed to move forward.
Past Patterns and Sector Rotation
Historical evidence shows that Industrial Conglomerates benefit from building spending that surpasses estimates, with persistent growth. The food products industry reacts negatively, likely due to lower consumer discretionary expenditure. This difference shows resource allocation-driven sector rotation.
When construction spending exceeds projections, investors may overweight Industrial Conglomerates (3M MMM, United Technologies UTX) and underweight Food Products (General Mills GIS). Due to tariff-driven cost constraints and manpower shortages, prudence is advised. Watch the Construction Backlog Indicator (CBI)—a reading below 8.0 months indicates a sector liquidity crisis.
The construction crisis emphasizes the necessity for diverse portfolios and low-volatility assets until macroeconomic clarity develops.
The Biggest U.S. Markets See a 63% Decline in Industrial Construction
Original Source: Industrial Construction Drops 63% Across Largest U.S. Markets
After years of rapid development, the U.S. industrial real estate market is balancing. Colliers reports that the 25 major U.S. industrial markets account for 76% of industrial inventory, driving national trends despite a development and lease slowdown.
Supply Falls, Vacancy Stabilizes
In the major 25 markets, new industrial supply fell 63% over the past year, tightening the construction pipeline. In Q1 2025, vacancy rates averaged 6.9%, up 88 basis points from last year. Net absorption, a key demand indicator, was 18 million square feet in the top 25 markets in the first quarter as demand and supply leveled off.
Speculative construction increased vacancy rates in various areas, which are projected to last. As new building slows, most markets will reach peak vacancy by year-end.
The construction pipeline shrinks
After years of significant post-pandemic growth, industrial inventory growth has slowed. Overall, space under development fell 61% from 2022 to 279 million square feet in Q1 2025, the lowest level since 2018. The top 25 markets made up 68% of that pipeline, or 188 million square feet.
Phoenix led all markets in inventory growth, adding 35.7 million square feet (8.6% more than last year). Its vacancy rate rose to 13.2% as new deliveries exceeded demand.
Key Markets Active Despite Lower New Supply
National new supply fell 48% to 65 million square feet in Q1 2025. The largest 25 markets fell 50% to 41 million square feet. The most new space was 7.4 million SF in Phoenix, 23% behind last year. Dallas-Fort Worth delivered 1.5 million square feet in Q1, down 90% from a year earlier.
In Chicago, Minneapolis-St. Paul, Cleveland, Kansas City, and St. Louis, tenant demand has outpaced new supply, stabilizing vacancy levels. National construction is likely to drop below 250 million square feet by year-end. Many markets may face quarterly supply levels not seen since 2015.
Peaking vacancy rates
Industrial vacancies grew for the 11th straight quarter, hitting 7.1%, up 93 basis points year-over-year. The market may be nearing peak vacancy as vacancies expanded at their slowest pace since late 2022.
Phoenix is the most oversupplied large city, while Cincinnati, Chicago, Houston, and Minneapolis-St. Paul had vacancy decreases over the past year. Many U.S. markets will reach a high in vacancies by 2025 as building slows and demand remains steady.
Demand Stable Despite Winds
Industrial leasing demand has dropped since the epidemic, but net absorption is healthy. Quarterly net absorption was 45 million square feet last year, down from 151 million in 2021.
Dallas-Fort Worth led all markets with 24.8 million square feet of net absorption last year, followed by Chicago (19.1M), Houston (16.7M), Phoenix (15M), and Atlanta (8.3M). Net absorption increased in 11 of the top 25 markets in Q1 2025, with Greater Los Angeles improving the most.
If economic uncertainties and trade policy impede leasing activity, demand for build-to-suit and manufacturing space should support continued absorption as speculative development slows.
Rent Growth Slows After Two-Year High
Industrial rent growth has eased after two years of double-digit rises. Warehouse/distribution rentals grew 5.8% to $10.65 per square foot nationwide last year. The top 25 markets grew 0.7% to $9.56 per square foot.
In Q1 2025, Columbus, Charlotte, Chicago, and West-Central Florida saw double-digit rent growth. LA rentals fell 14% year-over-year in seven major regions, including Greater Los Angeles.
After the recent slowdown, rents are likely to rise through 2025, but not as much as in 2022 and 2023.
Pre-Next Growth Cycle Stability
The industrial real estate sector is adjusting. As new development slows and vacancy rises, market balance returns. When economic conditions stabilize and trade policy uncertainties relax, economists expect demand to rise and drive growth. Due to steadier fundamentals and less speculative excess, several of the nation’s greatest industrial regions, notably in the Midwest and South, remain well-positioned.
Summary of today’s construction news
To sum it up, the construction data for June illustrates the fragmentation of the sector as well as the weakening of demand, which has consequences for both the Federal Reserve policy and equity allocation. Defensive sectors should be prioritized by investors, and they should keep an eye on August’s report for more understandable signs. In order to move forward, it is necessary to find solutions to labor shortages, bottlenecks in supply chains, and uncertainty regarding fiscal policies. When it comes to the short term, the construction industry is experiencing a slowdown, which highlights the importance of diversifying portfolios and concentrating on low-volatility assets until macroeconomic clarity is achieved.
On the other hand, the industrial real estate sector is undergoing a process of correction. As new development slows down and vacancy rates rise, the market is beginning to return to a state of equilibrium. A recovery of demand is expected to be the driving force behind the subsequent phase of expansion, according to experts, once economic conditions have stabilized and trade policy uncertainties have been alleviated. In the meantime, many of the nation’s greatest industrial centers, notably those located in the Midwest and South, continue to be in a favorable position as a result of more stable fundamentals and a relatively lower level of speculative overstock.
