The U.S. construction industry is entering 2026 with a more cautious outlook, even as activity levels remain relatively strong across many sectors. According to new insights from the Associated General Contractors of America (AGC), contractors are seeing a more uncertain and mixed landscape compared to previous years.
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Based on the AGC’s annual Construction Hiring and Business Outlook Survey—conducted in partnership with Sage—industry sentiment has softened, reflecting shifting demand patterns, labor constraints, and rising project risks.
Survey results reveal that expectations for construction activity are no longer uniformly positive. While most firms remain busy, confidence has declined across multiple market segments.
In contrast to 2025—when only two of 17 segments showed negative expectations—five segments posted negative net readings in 2026. This shift highlights growing caution among contractors about future workloads.
Despite this, certain sectors continue to stand out. Data centers remain the strongest-performing segment, with 65% of contractors expecting expansion compared to just 8% anticipating decline. This results in a net positive reading of 57 percentage points, marking the highest level of optimism across all categories.
Power projects also showed improvement, with net readings rising slightly, while healthcare construction—including hospitals and medical facilities—maintained steady demand with only minor declines.
Other sectors such as manufacturing, transportation, water/sewer, and highway construction continued to post moderate but positive outlooks, indicating that underlying demand remains intact even amid broader uncertainty.
However, several segments experienced notable downturns. Contractor sentiment turned negative for school construction, higher education, lodging, retail, and private office projects, reflecting shifting economic conditions and evolving space needs.
Beyond demand trends, contractors are facing mounting operational challenges that could shape performance throughout 2026.
One of the most pressing concerns is labor availability. More than four out of five firms reported difficulty hiring, with 82% struggling to find hourly craft workers and 80% facing challenges filling salaried roles. Labor-related issues—including worker shortages, rising wages, and quality concerns—rank among the top risks for the year ahead.
Project uncertainty is also increasing. Nearly two-thirds (63%) of contractors reported that at least one project had been canceled, delayed, or scaled back in the past six months. The leading causes include funding uncertainty, high financing costs, and rising material and labor expenses.
Tariffs have emerged as another growing factor. While only 13% cited tariffs as a direct cause of project disruption, roughly 70% of firms reported being affected by actual or proposed trade policies. The most common response has been to increase bid prices, with many firms passing costs onto project owners or accelerating purchases to mitigate risks.
Immigration enforcement has also become a notable concern. One-third of firms reported direct or indirect impacts, including workforce disruptions and subcontractor challenges. Given that a significant share of the construction workforce is foreign-born, the industry remains sensitive to policy changes in this area.
Meanwhile, supply-chain issues persist, though they are less severe than in previous years. Contractors continue to face delays in key materials such as electrical equipment, HVAC systems, and specialty components, often driven by long lead times and regulatory requirements such as the Build America, Buy America Act.
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The 2026 outlook from the Associated General Contractors of America paints a picture of cautious optimism. While demand remains positive across many sectors, rising costs, labor shortages, and policy uncertainties are creating a more complex and challenging environment.
Contractors who can adapt to these shifting conditions—by managing risk, controlling costs, and targeting high-growth sectors—will be best positioned to navigate the evolving construction landscape.
Originally reported by Macrina Wilkins, Director of Market Insights, and Ken Simonson, Chief Economist, Associated General Contractors of America in International Banker.
