Data center construction is pulling labor, electrical equipment and lending away from everything else, and contractors in at least one Federal Reserve district are rewriting contracts to survive the price swings. That’s the construction picture in the Fed’s October Beige Book, the anecdotal survey of business contacts across its 12 districts.
The Fed released the report Oct. 14, based on information collected through Oct. 5. Overall activity was soft: two districts grew moderately, three modestly, four slightly and three didn’t change. Construction comments were uneven in the same way, but the district pages repeat one theme.
Data center construction is crowding out capacity
The Chicago Fed said nonresidential construction was unchanged at a high level and that contacts said megaprojects were crowding out capacity for other projects. One equipment distributor told the bank that tech companies had tried to buy all the available electrical equipment for their data center developments. Suppliers pushed back because they had commitments to other jobs.
Kansas City said the data center buildout had crowded out other production and pressured the labor market, with firms adding hours, overtime and longer shifts. Dallas reported that data center construction kept driving up labor costs and drawing workers from other industries. In the San Francisco district, a large Mountain West contractor said data center competition had pushed up pay for electricians and other skilled trades.
Philadelphia’s read was blunter. Nonresidential activity was little changed, with continued work by firms in data centers and related manufacturing “but little new activity elsewhere.”
Contractors respond with cost-plus contracts
The St. Louis Fed reported that construction firms were increasing their use of cost-plus contracts to manage fluctuating input costs, and that contractors were looking for ways to handle the risk on long-term projects under big price swings. That lines up with the producer price data released a day later, which showed construction inputs up more than 11% in a year.
Cost-plus shifts risk to owners, and owners will only accept it where the contractor has leverage. Right now that leverage sits with firms that have crews and equipment allocations. A contractor without either is still bidding hard money and absorbing the swings.
Moratoriums and permit pauses show up in the field
The pushback against data centers isn’t only a planning story anymore. Cleveland said one contractor reported a local moratorium had led to the cancellation of a data center project, even as delayed projects and heavy highway work lifted activity overall. Richmond said industrial contacts remained concerned about data center moratoriums. Dallas said new data center starts had tempered under Texas’s pause on permits pending audits of grid reliability and water use, while costs kept rising on jobs already underway.
That’s a shift from what contractors told Exchange this month, when most said local backlash didn’t touch their build schedules. It still may not for work under contract. Backlog is high, and ABC’s indicator hit 8.7 months in September. But the Beige Book is the first broad federal survey to show cancellations and permit freezes reaching contractors directly.
Outside data centers, the notes were thinner. Boston said construction slowed, citing overbuilding in Boston and prohibitive costs in Providence, though Rhode Island kept seeing public infrastructure work. San Francisco said project timelines shortened as delays eased. The next Beige Book will show whether more districts start reporting the crowding-out problem as a capacity problem or a demand problem.