Data Centers and Institutional Projects Support U.S. Non-Residential Construction Growth, but Design Billings and Backlogs Continue to Weaken

Overview

The report analyzes U.S. non-residential construction planning, design billings, contractor orders, confidence, office employment, and utilization. Its central conclusion is that the industry is showing a clear divergence: data centers and institutional projects such as education and healthcare maintain strong planning momentum, but design billings and order backlogs remain weak, while macro pressures constrain a broader and more sustained recovery. Based on business exposure and company-specific initiatives, the report continues to favor AWI's and CSL's relative performance.

Core views

First, project planning and near-term design demand are diverging. The Dodge Momentum Index rose to 291.7 in July, up 6.9% (approximately 7%) from the upwardly revised June reading of 273.0 and up 11.7% (approximately 12%) year over year, primarily driven by a rebound in data centers following a weak June and broad-based growth across multiple institutional project categories. A total of 59 projects valued at least $100mn entered the planning stage in July, including three data center projects valued at $500mn each. Because the index typically leads non-residential construction spending by 12 to 18 months, the report believes these planning activities can support future construction, but growth is concentrated in a small number of categories rather than reflecting broad industry strengthening. Commercial project planning rose 4.1% month over month and 13.8% year over year and remained above 2019 levels, but the year-over-year growth was entirely attributable to data centers. Excluding data centers, commercial planning fell 16.2% year over year due to a higher comparison base and fewer traditional office, warehouse, retail, and hotel projects. Institutional project planning rose 13.1% month over month and 7.6% year over year, with education, healthcare, recreation, religious, and public-building projects all accelerating. The report expects momentum in data centers and institutional segments to support activity through the end of 2027, while other categories remain relatively subdued. At the same time, developers are incorporating further raw-material price increases into pricing, which will constrain the pace of real growth in the following year. In contrast to the strength in planning indicators, the Architectural Billings Index fell to 46.6 in July from 47.3 previously. Readings above or below 50 indicate month-over-month expansion or contraction in demand for design services, respectively; all four categories were below 50 in the current period on a three-month moving-average basis. Residential and mixed-use improved to 48.4 and 43.2 from 45.6 and 42.7, respectively, while commercial and industrial and institutional projects were unchanged at 46.7 and 47.4, respectively. Architectural design billings have remained in negative territory for more than 35 consecutive months, marking one of the longest downturns in the architectural design industry. Because this index typically leads non-residential construction spending by 9 to 12 months, the report believes that high interest rates, inflation, and labor constraints will continue to pressure developers, keeping activity concentrated in a small number of project categories. Regional billings were also all in contraction territory. The West improved to 47.8 from 45.6, the largest improvement; the Midwest rose to 46.7 from 45.1; the South fell to 48.7 from 49.5 due to weather-related headwinds, the largest month-over-month decline; and the Northeast was broadly unchanged at 44.8. This indicates that despite marginal improvement in some regions, a consistent nationwide recovery has not yet emerged. Contractor indicators also show weaker near-term visibility. Average backlog among non-residential construction contractors was 8.0 months in July, down 9% both month over month and year over year. Commercial and industrial project backlog fell 13% year over year to 8.0 months, infrastructure fell 9% to 8.8 months, while heavy industrial rose 80% year over year to 9.2 months. The South had the highest backlog at 10.1 months, although it declined slightly from June; the Northeast, Midwest, and West recorded 7.3, 7.1, and 6.9 months, respectively. All regions declined month over month, with the Midwest down 16% and both the Northeast and West down 9%. However, backlogs remain near a three-year high, which the report believes can provide some support for near-term construction activity. The contractor sales expectations index fell 4% month over month to 61.2 in July but remained above 50, implying that overall sales are still expected to grow over the next six months. 50% of respondents expected a slight increase in revenue, down from 57% in the previous month; 9% expected a significant increase, slightly above June; in total, 59% of members expected sales to increase, down from 65% in June but above 57% in the same period last year. Meanwhile, the proportion expecting sales to decline rose from 16% to 21%. Therefore, the survey does not point to a broad contraction, but marginal changes in confidence, visibility, and backlogs were all weaker than in the previous month. Office-related indicators improved modestly. Office employment totaled 34.4mn in July, unchanged both month over month and year over year but 4% above July 2019; the report defines office employment as civilian employment in professional and business services, financial services, and information industries, and regards it as a positive indicator for future office construction and repair and renovation spending. As of August 5, office utilization across the ten largest metropolitan areas was 54%, up 120 basis points month over month and 140 basis points year over year, but still 250 basis points below the post-pandemic high of 57% recorded in March 2026. Nine of the ten largest metropolitan areas improved month over month, with New York up 3 percentage points, Philadelphia, San Jose, and Austin each up 2 percentage points, while Washington, D.C. fell 1 percentage point. The report expects further recovery potential in office utilization as previously lagging northern and coastal metropolitan areas converge toward the national average. At the company level, approximately 95% of Armstrong World Industries' revenue comes from non-residential construction, making it the company under coverage most sensitive to the conditions described above. Healthcare, transportation, and education together account for approximately 60% of AWI's sales, and these categories have relatively favorable industry momentum. Combined with its exposure to repair and renovation and company-specific initiatives, the report maintains a positive view on the stock. Approximately 80% of Carlisle's revenue comes from non-residential construction, and the report believes it benefits from the reroofing cycle, innovation, cost improvements, and is better positioned to capture the transition toward more energy-efficient buildings. Owens Corning, A.O. Smith, and Mohawk also each generate more than 20% of sales from non-residential construction and will therefore be affected by industry changes, but they are less sensitive than AWI and CSL.

Analysis framework

The report first compares two indicators with different lead times: the Architectural Billings Index, which leads spending by 9 to 12 months, to measure design demand, and the Dodge Momentum Index, which leads spending by 12 to 18 months, to measure projects entering the initial planning stage. It then breaks down changes by categories such as commercial, institutional, and residential, as well as by the four major U.S. regions, before using contractor backlogs and six-month sales confidence to assess near-term construction visibility. Finally, it combines office employment, access-card utilization, and each company's share of revenue from non-residential construction to map industry signals to specific companies.

Methodology notes

• Cycle and Business Conditions FrameworkBusiness Cycle Turning-Point Analysis

  Architectural Billings Index Leading Indicator

  The index uses 50 as the dividing line between expansion and contraction and is calculated on a three-month moving-average basis. The report treats it as a 9-to-12-month leading indicator of non-residential construction spending to assess how current demand for design services will flow through to subsequent construction.

• Cycle and Business Conditions FrameworkBusiness Cycle Turning-Point Analysis

  Dodge Momentum Index Leading Indicator

  The index records when projects initially enter the planning stage and typically leads non-residential construction spending by 12 to 18 months. The report uses it to assess whether data centers and institutional projects can support construction activity through the end of 2027.

• Industry/Sector Analysis FrameworkUpstream, Midstream, and Downstream Industry-Chain Transmission

  Transmission from Project Verticals to Building-Materials Companies' Revenue Exposure

  The report first identifies the relative momentum of project categories such as data centers, healthcare, and education, then assesses the sensitivity of AWI, CSL, and other building-materials companies based on the share of their sales derived from non-residential construction and related categories.

• Cycle and Business Conditions Framework

  Office Employment and Access-Card Utilization Proxy Indicators

  The report uses office employment and access-card data from the ten largest metropolitan areas as proxy indicators for the degree of recovery in office demand to assess potential support for future office construction and repair and renovation spending.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Armstrong World Industries (AWI)

  Approximately 95% of revenue comes from non-residential construction, making it the company under coverage most sensitive to changes in industry planning, design, and construction; the report maintains a positive view and a Buy rating.

  Strengths

  Healthcare, transportation, and education together account for approximately 60% of sales, alongside exposure to repair and renovation and company-specific improvement initiatives.

  Weaknesses

  Its high share of revenue from non-residential construction makes it more sensitive to contracting industry billings and project delays.

  Comparison

  Its exposure to non-residential construction is higher than that of CSL and the other covered companies mentioned in the report.

  Risks

  Interest rates, inflation, labor constraints, supply-chain disruptions, and broader macro pressures could delay projects.

• Carlisle Companies (CSL)

  Approximately 80% of revenue comes from non-residential construction, and the report maintains a positive view and a Buy rating.

  Strengths

  The reroofing cycle, product innovation, cost improvements, and the trend toward greater building energy efficiency provide support.

  Weaknesses

  Its high revenue exposure to non-residential construction means it remains affected by industry project progress and macro conditions.

  Comparison

  Its industry exposure is second only to AWI but higher than that of Owens Corning, A.O. Smith, and Mohawk.

  Risks

  Inflation, labor, and supply-chain disruptions could delay construction, while raw-material price increases may also constrain real growth.

• Owens Corning

  More than 20% of sales comes from non-residential construction, so it will be affected by industry changes, but to a lesser extent than AWI and CSL.

  Comparison

  Its non-residential construction revenue exposure is lower than that of AWI and CSL.

• A.O. Smith

  More than 20% of sales comes from non-residential construction, so it will be affected by industry changes, but to a lesser extent than AWI and CSL.

  Comparison

  Its non-residential construction revenue exposure is lower than that of AWI and CSL.

• Mohawk

  More than 20% of sales comes from non-residential construction, so it will be affected by industry changes, but to a lesser extent than AWI and CSL.

  Comparison

  Its non-residential construction revenue exposure is lower than that of AWI and CSL.

Key data

• July Architectural Billings Index46.6Below the previous reading of 47.3, with all four project categories in contraction territory on a three-month moving-average basis.
• Duration of Design Billings Contraction35+ monthsOne of the longest downturns in the architectural design industry.
• Residential and Mixed-Use Billings Indexes48.4 / 43.2Improved month over month from 45.6 and 42.7, respectively.
• Commercial and Industrial, and Institutional Billings Indexes46.7 / 47.4Both were unchanged month over month and remained below 50.
• July Dodge Momentum Index291.7Up 6.9% from the upwardly revised June reading of 273.0 and up 11.7% year over year.
• Large New Projects Entering Planning59 projects, each valued at $100mn+Including three data center projects valued at $500mn each.
• Commercial Project PlanningMoM +4.1%, YoY +13.8%Growth was driven entirely by data centers; excluding data centers, it fell 16.2% year over year.
• Institutional Project PlanningMoM +13.1%, YoY +7.6%Education, healthcare, recreation, religious, and public-building projects accelerated.
• Average Contractor Backlog8.0 monthsDown 9% both month over month and year over year, but still near a three-year high.
• Heavy Industrial Backlog9.2 monthsUp 80% year over year, in contrast to declines in other major categories.
• July Contractor Sales Confidence Index61.2Down 4% month over month, but still indicating expected growth over the next six months.
• Share of Members Expecting Sales Growth59%Below 65% in June but above 57% in the same period last year.
• July Office Employment34.4mnUnchanged month over month and year over year and 4% above July 2019.
• Office Utilization as of August 554%Up 120 basis points month over month and 140 basis points year over year, but 250 basis points below the post-pandemic high of 57% recorded in March 2026.
• Non-Residential Construction Revenue ExposureAWI approximately 95%; CSL approximately 80%; Owens Corning, A.O. Smith, and Mohawk each 20+%AWI and CSL have the greatest sensitivity to the non-residential construction environment.

Impact & implications

The report believes that U.S. non-residential construction is not experiencing a broad recovery, but rather structural growth driven by data centers and institutional projects. Stronger project planning may support activity through the end of 2027, but weakening design billings, backlogs, and contractor confidence imply that near-term visibility remains limited. For companies, AWI and CSL have high non-residential revenue exposure, making them both more vulnerable to macro conditions and project delays and better positioned to benefit from stronger areas such as healthcare, education, transportation, reroofing, and energy-efficient buildings.

Risks

• High interest rates, inflation, and labor constraints may continue to pressure developers and keep industry activity concentrated in a small number of project categories.
• Supply-chain disruptions and broader macro pressures may cause planned projects to be delayed.
• Further raw-material price increases are being incorporated into developers' pricing and may slow the pace of real growth in the following year.
• Weather-related headwinds have already caused the South to record the largest month-over-month decline in architectural design billings among the four major regions.

What to watch

• Track whether planning momentum in data centers and institutional projects can support activity through the end of 2027 as the report expects.
• Monitor whether the Architectural Billings Index, which has contracted for more than 35 consecutive months, can return above 50 and whether broader improvement emerges across project categories and regions.
• Watch whether contractor backlogs and six-month sales confidence continue to decline.
• Monitor whether inflation, labor, supply-chain conditions, and the macro environment delay projects, as well as the impact of raw-material pricing on real growth.
• Track whether office utilization in northern and coastal metropolitan areas converges toward the national average.