This year will be a mixed picture for construction, survey says

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Contractors had significantly smaller bidding prospects in 2026 compared to last year, however, demand for data centers, power and health care facilities remained strong. This year, construction firms described the impacts that tariffs and immigration enforcement had on their business as they wrestled with workforce challenges.

The Associated General Contractors of America and technology company Sage on Jan. 8 presented the 2026 Construction Hiring & Business Outlook, an annual survey of commercial contractors to gauge expectations for the coming year.

The results showed “Far more mixed expectations than last year,” said Jeff Shoaf, the CEO of AGC. “While there are pockets of optimism in select private sector markets, overall sentiment has dampened.”

In the 2025 outlook, only two of 17 market segments showed that contractors expected a decline in the dollar value of their work, Shoaf said. This year, there were five segments with negative readings. But segments such as data centers, power facilities and health care projects are expected to drive much of the private sector market in 2026, he added.

Contractors were increasingly worried about the broader economy and the possibility of a recession, Shoaf said. According to the survey, around 57% of respondents said there was an insufficient supply of workers. Materials costs, uncertain policies, persistent labor shortages and tariffs brought on by the President Donald Trump administration dogged contractors this year.

At least 63% of firms expected to increase their headcount in 2026, survey results showed.

Sectors such as water and sewer construction, manufacturing, transportation facilities and bridge and highway construction expect to see a modest growth in demand.

Data centers and power projects rocketed ahead, while lodging, office and retail took the hardest hits

Contractors had a more conservative view about their prospects for projects to bid on in 2026, said Ken Simonson, the chief economist at AGC.

AGC’s net reading, or the percentage of respondents who expect the dollar value of projects they bid on to expand minus the percentage of who expect it to shrink this year, was positive for 12 of 17 categories of construction, Simonson said. Last year, the reading was positive in 15 categories.

The highest net reading was 57% for data centers; 65% of respondents expected the market for data center construction to increase compared to 8% who expected the market to shrink. The category saw the largest optimistic increase since a year ago, when the net reading was 42%.
Power projects had a net reading of 34%, making it one of the two categories higher than in 2025.

In health care, non-hospital facilities such as clinics, testing facilities and labs and 24% and hospital construction had a net reading of 20%. Water and sewer and manufacturing had positive net readings of 16% and 15% respectively.

Net readings for warehouses, federal and multifamily construction had dropped to their lowest levels since 2021 during the COVID pandemic, Simonson said.

• Warehouse construction dropped 14% to 5% between 2025 and 2026.
• Federal contracting for U.S. agencies fell from 22% to 5% in that period.
• Multifamily slid from 12% to 4%.

Expectations in the education sector had also slipped, following weakening trends for the past several years.

• K-12 construction fell from 13% to -1%.
• Higher education slipped from 12% to -5%.

Lodging, office and retail had the lowest outlook of 2026.

• Lodging fell from positive 7% in 2025 to -7% in 2026.
• Private office declined by 11 points to -14%.
• Retail dropped 13 points to -18%.

Impacts of tariffs and immigration enforcement

On top of slipping demand and other challenges, contractors also reported tariffs on materials and impacts from immigration enforcement as new factors in their outlook for the year.

• Around 70% of firms reported being affected by tariffs in 2025, survey results showed.
• 40% reported responding to actual or proposed tariffs by raising bid prices.
• 20% of firms added price sharing adjustments or other terms to their contracts.
• 35% of firms reported passing most or all of their tariff-related costs to project owners.
• 11% said they absorbed most or all tariff costs.

Nearly one in three firms said they accelerated their purchases, while 6% delayed their purchases, Simonson said. 13% switched from foreign to domestic producers.

Construction employs more workers born outside of the U.S. than the rest of the economy, Simonson said, citing the U.S. Census Bureau. Around 35% of construction craft workers were born outside the country, but the census doesn’t ask about legal status. In 2024, those born outside the U.S. made up 19.2% of the U.S. labor force, according to the U.S. Bureau of Labor Statistics.

The concentration of construction workers who immigrated varies by state, with California, Texas, New Jersey and Washington, D.C. seeing higher concentration of workers born outside the U.S. Northern states and states such as West Virginia rank in the single digits.

The construction industry in the Milwaukee area employs 4,265 workers who were born outside the U.S. according to Construction Coverage. 10% of the local construction industry is born outside the country, the eighth smallest share of any U.S. metro. Nationwide, one in four construction workers is an immigrant, the report showed.

Nationwide, one-third of construction firms reported having been affected by immigration enforcement actions in the past six months, AGC survey results showed. 6% of firms reported that immigration authorities had showed up at a job site or other site such as an office. 11% of firms said workers have disappeared or failed to show up to work and 24% said subcontractors had been affected, Simonson said.

Three-fifths of respondents reported that an owner postponed or canceled a project in the past six months, Simonson said. 35% of firms cited a lack of funding or uncertainty of finding a funding source whether federal, state or private. More than one in three firms said project financing was unavailable or too expensive, and under a quarter of firms said increasing materials and labor costs played a role, he added.