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U.S. construction economists are forecasting stalled growth in the sector in the medium term with a growing risk of decline, but selective subsectors are expected to buck the trend.

Total construction spending was down three per cent from July 2024 to July 2025, and higher tariffs have raised some costs and caused owners to put a hold on projects, the experts reported during a recent webinar. The exceptions include data centres, power, airports and niches in health care and distribution.

The economists were assembled for the Construction Economy Outlook webinar for Fall 2025, presented by Nov. 13.

“The construction market is really unusually unbalanced at present,” commented American Institute of Architects chief economist Kermit Baker. “We’re seeing a few strong sectors, but most of the core sectors we think about are really fairly weak.”

The event featured presentations by Baker, Associated General Contractors of America (AGC) chief economist Ken Simonson, �ȵ���� chief economist Michael Guckes and Kristy O’Brien, director of content acquisition for �ȵ����.

�ȵ����’s vice-president for economic content Paul Hart served as moderator.

“Economic growth does seem close to stalling, and I think construction is even more vulnerable,” said Simonson.

Construction job growth has tailed off sharply in 2025, he said, and there has been a “plunge” in project openings.

Simonson said the risks of inflation and recession are high, with labour costs set to rise four to five per cent and ICE enforcement actions threatening worker availability.

Seeking policy stability

Assessing the impacts of Donald Trump administration policy, Simonson suggested higher tariffs will raise costs and invite retaliation and may disrupt supply chains; harsh immigration and deportation actions will worsen construction labour shortages; and the expectation of larger deficits may push interest rates higher.

O’Brien said, “The key question I’m interested in for next year is whether we’ll see a stabilization in borrowing costs and greater clarity on trade policy. I think those two factors will likely determine whether we see a rebound in private sector activity or if this cautious approach continues.”

Simonson said the administration’s removal of federal regulatory hurdles may help projects start sooner.

“Solar seems to be doing well, even though the administration and congress have done away with some of the incentives or permits for it,” said the AGC economist. “But there are also designs for small modular nuclear and for geothermal. So, we may see new types of power, or at least ones we haven’t seen invested in in a while.”

Other power projects to watch for, he said, are transmission, local distribution and battery storage.

Outlining recent growth sector by sector, Simonson said the apparent flatness in office-sector stats reflects a duality, with a 30-per-cent spike in data centres countered by a 17-per-cent decline in private office.

“Both trends are going to continue in the coming year,” he said.

In single-family home construction, there could be a gradual uptick if mortgage rates don’t rise, Simonson believes, but multifamily is close to bottoming out.

Warehouse declines are likely to continue into 2026 given high costs and weak demand, he said. In manufacturing construction, cancelled and deferred projects are likely to outweigh new starts.

Reconstruction opportunities

Investors that are switching away from new builds may look elsewhere, Baker suggested.

“In that environment, I think there are more opportunities in the reconstruction realm, particularly adaptive reuse and conversion of unutilized facilities,” he said.

Looking more closely at costs, Simonson said, a year ago the post-COVID hikes in prices seemed to have plateaued, but now it looks as if materials costs could rise two to four per cent – and more if tariffs last. As for availability, there were few problems with lead times except for electrical gear.

For his part, Guckes made a plea for contractors to pay added attention to costs in the coming year.

“You want to protect your profitability?” he asked. “You have to be absolutely ruthless in terms of controlling costs this year and certainly next year, figuring out creative ways to manage the supply chains, to substitute products, to control your cost so that you have a chance to control your profit margin.”

It’s imperative for contractors to bid correctly, Guckes added.