Contractor confidence faltered in October as firms across the country reported declining backlogs and a more pessimistic outlook for the construction market heading into winter. New survey data from the Associated Builders and Contractors (ABC) shows that more than half of U.S. contractors believe the industry is contracting, reflecting growing concerns about slowing demand, tighter lending and uncertainty around economic conditions.
According to ABC, nearly 65% of contractors said the construction industry was contracting in October — one of the most pessimistic readings of the year. The association’s widely watched Construction Backlog Indicator also fell to 8.4 months, its lowest point since May, suggesting project pipelines are thinner than they were at the end of the summer and below the levels needed for steady growth.
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ABC Chief Economist Anirban Basu said the numbers reflect multiple pressures on builders, ranging from financing challenges to shifting demand patterns. “This dismal assessment accompanied the lowest backlog reading since May, and 23% of contractors expect their sales to decline over the next six months, the highest share in over a year,” Basu said. He added that “These findings are consistent with an industry that is sustained by still-elevated manufacturing construction and a surging data center sector.”
Even as other sectors soften, construction tied to manufacturing expansions, semiconductor plants, energy reinvestment and hyperscale data centers remains robust. ABC reported that one in seven contractors is now working on data center projects, and those companies are reporting a far stronger backlog — 10.9 months— compared to eight months for contractors without such work.
These trends mirror broader national patterns, where federal incentives through the CHIPS Act, Inflation Reduction Act and other industrial-policy initiatives have elevated manufacturing and tech-related construction to record highs. Many contractors say these markets have kept them afloat while commercial, office and residential demand has cooled.
ABC’s new report shows the Construction Backlog Indicator slipped by just 0.1 months from September to October, but the slowdown was uneven across sectors:
This drop among smaller firms is significant, industry analysts say, because small contractors often feel economic shifts earlier and more severely than large firms with diversified portfolios.
ABC’s Construction Confidence Index — which measures expectations for sales, profit margins and staffing over the next six months — showed mixed results:
Even with the declines, all three indicators remained above 50, signaling expectations of growth — but at a slower pace than earlier in the year.
Contractors say rising labor costs, tighter borrowing conditions and continued inflation in specialty materials are squeezing profit margins, even as wage demands climb to retain workers in a historically tight labor market.
Higher interest rates continue to delay or freeze planned commercial and residential projects. Developers report difficulty securing financing for office, retail and multifamily work, creating gaps in contractor pipelines.
Despite cooling demand, labor shortages persist. Many firms are reluctant to reduce staffing, fearing they won’t be able to rehire once demand rises again — a dynamic that further compresses profit margins.
While data center and industrial construction remain historically strong, economists warn that the sector is increasingly dependent on these categories. If federal incentives slow or tech investment softens, backlog could fall more sharply.
Contractors surveyed expressed concern about economic instability, political uncertainty heading into an election year, and the possibility of continued tightening in the credit markets.
Although the industry is not yet in recession, the decline in backlog and weakening confidence suggests a slower pace of activity heading into early 2026 unless demand rebounds or financing conditions improve.
Originally reported by Ethan Duran, BridgeTower Media in Finance - Commerce
