When Mitchell Metal Products decided to invest in a line of robotic welders and other automated assembly equipment, the company expected to build an addition to its metal-stamping plant in northern Wisconsin.
Mitchell had ordered a similarly sized expansion in 2018 that cost $727,000, company President Tim Zimmerman said. But when bids for the new project came in last fall, the lowest one was $2.1 million.
"That was stronger than our budget could take," Zimmerman said, who anticipated spending $1.2 million this time around. "The realities of contemporary pricing sobered us up very quickly. We abandoned the idea."
The soaring costs of building materials, high interest rates, labor shortages and long waits for equipment are discouraging construction projects like Mitchell's.
The AI data-center spending binge is helping to mask some of the weakness in the traditional categories of commercial and industrial buildings.
Spending on data-center construction in May rose 23% from a year earlier, according to the U.S. Census Bureau. Yet data centers accounted for 8% of the total spending on private, nonresidential construction.
"Beyond data centers, there's not really much moving construction forward," said Anirban Basu, chief economist for the Associated Builders and Contractors trade group. "There's just not much depth to construction spending right now."
Construction spending on manufacturing buildings dropped 22% year-over-year in May to a seasonally adjusted annual rate of $174 billion. Manufacturing makes up the largest part of private, nonresidential construction, accounting for nearly a quarter of the spending in May, according to the Census Bureau.
And while the Trump administration is aggressively pushing to reshore manufacturing, rising costs make that a difficult calculus for some companies.
Construction of warehouses and factories in the U.S. boomed during and after the Covid-19 pandemic in response to the rise in e-commerce. Supply-chain bottlenecks forced companies to rethink their dependence on overseas suppliers in favor of more domestic sourcing and inventory stocking that required factories and warehouses.
Meanwhile, policy changes affected other plans. The Trump administration erased America's push to make its auto industry mostly electric by the 2030s, leading to a downturn in the construction of ambitious U.S. plants. Softening demand for some types of chips, shortages of technical workers and cost overruns have slowed construction at some semiconductor factories.
As work on these high-cost plants winds down, analysts expected a decline in aggregate spending on manufacturing plants. But analysts say the soaring costs of construction materials, like steel and electrical gear, are further discouraging spending on projects.
Materials costs for nonresidential construction are up more than 55% since early 2020 and even higher for fabricated steel, copper wire and some other individual materials, according to the government's producer price index.
Thomas Murphy, vice president for Power & Construction Group, an electrical-infrastructure contractor near Rochester, N.Y., said prices for transformers are up about 70% in the past five years. Order backlogs for some electrical equipment extend for more than two years. That is driving up construction costs by lengthening the time it takes to complete jobs.
"Anything that is available in the United States is gobbled up immediately," Murphy said. "Between data centers and solar projects, they're taking a huge bite of any equipment."
Analysts say President Trump's aggressive use of tariffs to make imported goods more expensive -- an attempt to entice manufacturers to build more in the U.S. -- also raised domestic prices for manufacturing materials, making it harder for manufacturers to justify factory expansions.
For a manufacturer with plants or suppliers overseas, "Is this the time to move my supply chain to the United States? In many cases, the answer is no," said Basu, the builders' group economist.
Some manufacturers are trying. Toyota last week said it planned to spend $3.6 billion by 2030 to shift some production of its midsize Tacoma pickup trucks from Mexico to a San Antonio assembly plant where it already produces larger pickups and SUVs. The move is expected to help the Japanese automaker defray its U.S. tariff costs in its largest market and keep its U.S. dealers better-stocked with vehicles, according to analysts.
To offset rising material costs, other manufacturers are expanding services and assembly work to broaden their businesses.
"I'm feeling a lot of pressure to expand," said Scott Seaholm, chief executive of Ohio-based Universal Metal Products. Seaholm wanted to add 60,000 square feet to Universal's metal stamping plant near McAllen, Texas. That would double the size of the plant, allowing Universal to offer more engineering and assembly work on the metal parts the company makes for appliance and automotive customers in Mexico.
Seaholm said the cost for the addition he wanted is about $200 a square foot. That is about 60% higher than ordinary industrial buildings in South Texas a couple of years ago, he said. He added that he worried the company wouldn't be able to recover the cost for the original plan for the addition.
With the project now more than a year behind schedule, Seaholm said he has scaled it down to about 40,000 square feet to make it affordable.
"I need the plant capacity," he said. "I never expected this to be such a pain in the neck."
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
July 14, 2026 16:42 ET (20:42 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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