BOSTON — The U.S. construction industry is entering the second half of 2025 in a state of cautious optimism, according to Eldridge Acre Partners’ (EAP) newly released Q2 2025 Construction Market Update. While tariffs, labor shortages, and slowing spending growth continue to weigh on the sector, a surge in construction starts and a stable backlog suggest the industry is adapting to an evolving economic landscape.

Spending Growth Slows, But Starts Surge

EAP projects total U.S. construction spending to rise just 1% in 2025, a steep slowdown from the 7% growth seen in 2024. Analysts say the sluggish pace reflects broader economic uncertainty and a market “recalibrating after years of aggressive expansion.”

Despite the weaker spending forecast, June’s construction starts jumped 16%, marking a potential turning point. Nonresidential starts surged 39% month-over-month, offsetting a modest 1% dip in residential projects. Overall, starts for 2025 are tracking 1% ahead of last year’s pace.

Backlog Stability Shows Underlying Strength

The Construction Backlog Indicator (CBI) ticked up by 0.3 months year-over-year, showing a steady pipeline of work ahead. Large and small contractors reported gains, while mid-sized firms (annual revenue $30M–$100M) experienced some backlog erosion.

Regionally, the Southern U.S. leads with a 9.4-month backlog, narrowly edging out the Northeast at 9.2 months.

Architectural Billings Remain Weak

The Architectural Billings Index (ABI) registered 46.8 in June, remaining below the 50 threshold that signals growth. While demand for design services continues to decline, the contraction has slowed. The South was the only region to post growth, with an ABI score of 50.6, hinting at stronger future activity there.

Tariffs Stir Costs—But Impact is Contained

New tariffs implemented in Q2 caused sharp, short-term spikes in material costs:

• Steel: +1.1% MoM, +10.9% YoY
• Aluminum: +0.3% MoM, +19.2% YoY
• Lumber: +1.4% MoM, -18.0% YoY
• Cement: +0.5% MoM, +15.3% YoY

Still, EAP estimates tariff-driven cost impacts to guaranteed maximum price (GMP) contracts at just 2%–5%. The report credits competitive bidding and early procurement strategies for softening the blow.

Labor Market Tight but Easing Slightly

Construction job openings fell slightly to 245,000 in May, with unemployment at 3.4%. While skilled labor remains scarce, the pace of openings and hiring appears to be stabilizing, offering some relief to project schedules.

Global Trade Shifts Keep Costs in Flux

A universal 10% import tariff took effect in April, with rates as high as 50% for imports from China, India, and the EU. However, the U.S. has struck preliminary deals with the UK and Japan and reached a tariff-capping agreement with the EU. Negotiations with India, Saudi Arabia, and Thailand are ongoing.

Despite policy churn, the Global Supply Chain Pressure Index dropped to 0.00 in June, signaling balanced supply chain conditions.

Industry Outlook

EAP’s analysis concludes that the sector is “holding steady in a volatile environment.” While design demand remains muted and spending forecasts are modest, growth in starts, a resilient backlog, and minimal realized tariff impacts suggest that the construction market has learned to operate under uncertainty.

Additional Expert Commentary

Industry strategists note that now may be a rare window for well-capitalized owners to move forward on projects, as competitive bidding and moderate cost volatility could work in their favor. Regional contractors are also reporting improved subcontractor availability, a shift from the post-pandemic squeeze.

EAP warns, however, that continued policy shifts, fluctuating commodity prices, and uneven regional trends could change the outlook quickly. “Adaptability will remain the most valuable asset for contractors in 2025,” the report emphasizes.

Originally reported by Boston Real Estate Times.