The U.S. construction sector is showing signs of strain as inflation, labor shortages and policy-driven pressures weigh on activity heading into 2026, even as large-scale projects in the Midwest and Upstate New York provide pockets of optimism, according to a leading industry economist.
Anirban Basu, chief economist for the Associated Builders and Contractors and head of Sage Policy Group, said more contractors are expressing concern about the industry’s outlook for 2026 than they did a year ago. Basu presented his findings during the 2026 Construction Economic Update and Forecast for Construction Executive, which examined broader economic conditions affecting commercial construction firms nationwide.
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One of the most concerning indicators highlighted was the decline in construction job openings. According to an ABC analysis of the Bureau of Labor Statistics’ monthly survey, the industry reported 213,000 open positions at the end of October. That figure represents a drop of 18,000 openings from September and a decline of 36,000 compared with the same period last year.
Inflation has continued to complicate project planning and execution. Consumer Price Index data showed inflation running at approximately 3% in September, while unemployment stood at about 4.44%, slightly higher than last year. Basu noted that declining job numbers and softer labor demand are key signals that the construction sector is weakening as the broader economy cools.
Recent federal policy shifts aimed at strengthening domestic manufacturing and tightening immigration enforcement have also added pressure. The U.S. Immigration and Customs Enforcement agency reported more than 26,000 undocumented immigrants arrested so far this year, which has affected workforce availability across construction markets. While the intent is for contractors to replace undocumented workers with authorized labor, overall employment figures have continued to trend downward.
Tariffs introduced under President Donald Trump’s administration have further influenced project costs and timelines. A 10% minimum tariff applied broadly across trading partners, along with higher targeted tariffs on construction-critical materials such as aluminum, steel and copper, has raised concerns about project starts and completion schedules. Copper, a key material for data center construction, has been subject to tariffs as high as 50%.
Despite worries about future demand, many contractors continue to report strong backlogs. In a recent webinar survey, 39% of respondents identified insufficient demand as their top challenge, closely followed by labor shortages at 38%. Financing availability was cited by 12%, while supply chain and material issues accounted for 5%.
ABC’s backlog indicator stood at 8.4 months in November, unchanged from October 2024. Basu suggested that steady backlog levels, combined with softening demand, may indicate that projects are taking longer to complete due to higher material costs and limited labor availability.
While national indicators point to a slowdown, Basu identified the Midwest and Upstate New York as relative bright spots, driven by megaproject activity in data centers and semiconductor manufacturing.
In Minnesota, Meta is constructing an $800 million, 715,000-square-foot data center in Rosemount and has acquired additional nearby land for potential expansion. Multiple proposals for large-scale data campuses are also advancing across communities including Farmington, Cannon Falls, Hampton and Apple Valley.
Upstate New York is positioned for substantial long-term growth through Micron’s planned semiconductor facility near Syracuse, a project expected to employ up to 9,000 workers and carry a price tag of as much as $100 billion. Ohio is also seeing major investment, with Intel committing $28 billion to two new chip manufacturing facilities near Columbus.
Wisconsin has emerged as another data center hub, with major investments from Microsoft, Meta, Vantage Data Centers and QTS Data Centers totaling tens of billions of dollars across multiple communities.
In closing his outlook, Basu indicated that the next major national construction boom is likely to emerge in housing, following several years of heightened activity in health care construction. While near-term challenges persist, regional megaprojects and shifting market needs continue to shape the industry’s longer-term trajectory.
Originally reported by Ethan Duran, BridgeTower Media in Finance-Commerce.
