U.S. construction economists are signaling a period of stagnation and uncertainty for the industry, but not all sectors are affected equally. While total construction spending has declined and tariffs have raised costs, select areas such as data centres, power projects, and certain healthcare and distribution facilities continue to grow. Here’s a detailed outlook from leading experts.
1. Overview of the Construction Economy Outlook
The Construction Economy Outlook webinar for Fall 2025, hosted by ConstructConnect News, gathered leading economists to discuss the U.S. construction sector’s trajectory. Presenters included:
- Kermit Baker, Chief Economist, American Institute of Architects
- Ken Simonson, Chief Economist, Associated General Contractors of America (AGC)
- Michael Guckes, Chief Economist, ConstructConnect
- Kristy O’Brien, Director of Content Acquisition, ConstructConnect
Paul Hart, ConstructConnect’s VP for economic content, moderated the session.
2. Decline in Total Construction Spending
From July 2024 to July 2025, total construction spending dropped 3%, reflecting broader economic pressures. Higher tariffs and project deferrals have created uncertainty, with many owners delaying investments in non-essential construction.
3. Sector-by-Sector Performance
Most traditional construction sectors are weak, but some niches are performing well:
- Strong Sectors: Power, airports, healthcare niches, distribution, data centres
- Weak Sectors: Private office, warehouse, multifamily residential
Table: Sector Growth Overview
| Sector | Trend | Notes |
|---|---|---|
| Data Centres | +30% | Driving tech infrastructure demand |
| Private Office | -17% | Decline offsets data centre growth |
| Single-Family Housing | Slight increase | Depends on mortgage rates |
| Multifamily Housing | Near bottom | Limited new starts |
| Warehouses | Decline continues | High costs and weak demand |
| Manufacturing | Negative | Deferred/cancelled projects dominate |
4. Power Projects and Renewable Energy Opportunities
Despite regulatory changes, solar, small modular nuclear, geothermal, transmission, local distribution, and battery storage projects remain robust. These investments defy the broader trend of caution in construction.
5. Data Centres and Office Sector Divergence
The dual trend in office-related construction is notable: while private office space is shrinking, data centre construction is booming, reflecting the growing demand for digital infrastructure.
6. Housing Market Trends: Single-Family vs. Multifamily
Single-family construction may see a gradual increase if mortgage rates remain stable, but multifamily construction is near a low point, limiting new urban housing developments.
7. Warehouses, Manufacturing, and Deferred Projects
High costs and soft demand continue to suppress warehouse construction. Manufacturing projects are increasingly deferred or canceled, signaling a cautious approach by investors.
8. Labour Challenges and Inflation Risks
Labour shortages, rising wages (4–5%), and ICE enforcement actions threaten availability. Inflation, combined with tariff-related material costs (potential 2–4% increase), further pressures contractors.
9. Policy Uncertainty and Tariff Impacts
Uncertain trade policies and the potential for retaliation may disrupt supply chains. Regulatory changes by the federal government could accelerate some projects, but immigration restrictions may worsen labour gaps, and expectations of higher deficits could increase interest rates.
10. Opportunities in Reconstruction and Adaptive Reuse
Investors are increasingly looking at reconstruction, adaptive reuse, and conversion of underutilized facilities as viable alternatives to new builds. These projects may offer higher returns in a cautious market.
11. Cost Management Strategies for Contractors
Experts advise contractors to:
- Control costs ruthlessly
- Find creative ways to manage supply chains
- Consider product substitution
- Monitor margins closely to protect profitability
Contractors who implement these strategies are more likely to maintain profitability despite slow sector growth.