End-of-Year Construction Outlook: What to Know Heading into 2026
Summary
The construction industry faces challenges from high costs and labor shortages as 2025 ends, but signs of recovery may emerge in 2026 due to fiscal stimulus and easing interest rates.
Why It Matters
Understanding the construction industry's outlook is crucial for stakeholders to navigate potential challenges and seize growth opportunities. As federal tax incentives and easing monetary policies come into play, businesses can better prepare for shifts in demand and labor dynamics, making this analysis vital for strategic planning.
Key Takeaways
- Nonresidential construction slowed in 2025, but potential recovery is expected in 2026 due to easing monetary policy.
- Labor shortages persist, driven by retirements and immigration policies, impacting hiring in the construction sector.
- Input costs may rise in 2026 due to tariff-related increases and trade uncertainty, despite stable prices in 2025.
- Federal tax incentives could stimulate demand and support growth in construction spending in the latter half of 2026.
- Infrastructure funding faces risks from potential federal spending cuts after the expiration of the Infrastructure Act in October 2026.
03 December 2025 | 09:00 AM America/New_York End-of-Year Construction Outlook: What to Know Heading into 2026 By Ben Ayers, AVP, Senior Economist, Nationwide As 2025 closes, the construction industry continues to face headwinds from elevated costs, labor shortages and policy uncertainty. However, signs point to cautious optimism heading into 2026, driven by fiscal stimulus and potential easing of interest rates. The Nationwide Economics team recently released its Year-End 2025 Construction Industry Report, which highlights several key trends:Overall Industry Activity: Nonresidential construction slowed in 2025 due to high costs and interest rates – with data centers being a notable exception – but easing monetary policy and reduced uncertainty could revive activity in 2026.Labor Market: Labor demand softened while supply shrank due to immigration policy, and hiring is expected to remain constrained in 2026 with continued wage pressure.Input Costs: Tariff-related cost increases were modest in 2025 but may rise in 2026 amid trade uncertainty, though federal tax incentives could stimulate demand and domestic production.Building Construction: Construction spending stalled across key sectors in 2025, but federal tax incentives and long-term trends may drive a rebound in the latter half of 2026.Heavy & Civil Engineering: Infrastructure Act funding supported growth in 2025, but its October 2026 expiration and potential federal spending cuts pose risks to future projects.Specialty...
