Construction Spending Slips as Broader Activity Signals Turn Mixed — Evening Brief – 03.23.26

Economic data is beginning to reflect a more nuanced shift in momentum, as pockets of strength in public investment and consumption are increasingly offset by softness in rate-sensitive sectors. The latest readings on construction activity and broader economic indicators suggest that while the U.S. economy remains on stable footing, underlying growth is becoming more uneven

Construction spending fell 0.3% in January to a seasonally adjusted annual rate of $2.19 trillion, missing expectations for a gain and reversing a stronger, upwardly revised 0.8% increase in December. On a year-over-year basis, spending rose just 1.0%, signaling a slower pace of expansion across the sector.

The weakness was driven by the private side of the market. Private construction declined 0.6% month-over-month, with residential spending down 0.8% and nonresidential falling 0.4%, reflecting continued pressure from higher financing costs and cautious development activity.

Public construction provided a partial offset, rising 0.6%, led by a 3.3% increase in highway spending, while educational construction edged slightly lower.

At the same time, broader economic activity indicators softened. The Chicago Fed National Activity Index (CFNAI) dropped sharply to -0.11 in February, down from positive territory in January, with three of four major components contributing negatively. Production and employment metrics weakened notably, while consumption and housing showed only modest improvement.

The three-month average held near neutral at -0.01, suggesting the economy is neither accelerating nor contracting meaningfully, but losing some momentum.