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Construction activity in the Ninth Federal Reserve District declined slightly over the past six months, with nearly half of the companies surveyed reporting lower activity compared to the same period in 2024, according to results from the Minneapolis Federal Reserve Fall Construction Industry Survey.
The results, which were presented during a Dec. 12 webinar, showed that rising input costs continue to pressure margins, with 80 percent of companies reporting higher costs, while only 63 percent said they increased prices charged to customers. The result has been increased competition for non-residential work, Federal Reserve Bank of Minneapolis regional outreach director Erick Garcia Luna said during the webinar.
Despite the softer activity, demand for labor remains strong, with nearly half of respondents actively trying to hire, driven by retirements, skilled labor shortages and continued demand in select non-residential segments such as manufacturing, infrastructure and healthcare.
According to the survey, construction companies in the region face a more competitive and uncertain environment as activity softens, costs remain high and pipeline projects are scaled back. The survey, conducted twice a year, surveyed more than 260 construction companies in Montana, North Dakota, South Dakota, Minnesota, northern Wisconsin and Michigan’s Upper Peninsula.
Garcia Luna noted that construction activity declined slightly compared to the same period last year, with nearly 50 percent of respondents reporting lower activity, while about a third reported growth, highlighting uneven conditions across the district.
Residential construction continues to face the strongest challenges. Non-residential segments have shown greater resilience, but this comes with growing caution.
“When you isolate non-residential construction, especially industrial construction and infrastructure, the picture looks a little better,” Garcia Luna said. “There are still pockets of projects that keep companies busy, especially in industrial construction.”
However, he noted that this may only be temporary, as non-residential contractors also reported backlog reductions and fewer requests for proposals, indicating a slowdown in future work.
“Uncertainty is keeping some project owners on the sidelines,” Garcia Luna said. “People are still nervous about investing. That wait-and-see attitude is showing in declining backlogs and fewer projects coming into the pipeline, and companies expect that to continue into the new year.”
Cost pressures and competition are intensifying
Another big takeaway from the webinar was that cost pressures remain pervasive.
“This is affecting how companies compete for projects,” Garcia Luna said. “Smaller companies in particular are losing jobs to better capitalized companies that can absorb higher costs or accept tighter margins.”
Confusion around rates has added another layer of risk for non-residential contractors, complicating both pricing and bidding decisions.
While materials such as aluminum remain a concern, Garcia Luna noted that contractors also pointed to increased costs related to heavy equipment and machinery components, particularly in industrial and infrastructure construction.
“We often think of fees in terms of materials,” he said. “But machinery components, repairs and specialized equipment are also becoming more expensive, and that adds to the uncertainty.”
Data centers and healthcare offer opportunities
Data center construction continues to support the region, although Garcia Luna warned against over-reliance on the sector.
“There are only a handful of active data center projects in the district,” he said. “The concern we feel is that these projects absorb skilled labor, particularly electricians and plumbers, which may create shortages for other types of non-residential work.”
Beyond data centers, healthcare construction emerged as one of the most consistent sources of opportunity in the non-residential sector, with steady permitting activity and hospital investment in parts of Minnesota and the Dakotas.
“Healthcare is where we’re seeing sustained project flow,” he said. “Outside of data centers and healthcare, it’s harder to identify other segments that generate the same level of consistent work.”
The outlook remains cautious
Even with a reported slowdown, demand for labor has continued to rise.
“Replacing retired workers is a challenge,” Garcia Luna said. “In many cases, the skills needed are not easy to find.”
Looking ahead to 2026, the outlook for contractors remains cautious. While expectations vary by industry, uncertainty continues to shape decision-making.
“We’re hearing a lot of the same concerns we heard earlier this year,” Garcia Luna said. “This persistence is important. It suggests that uncertainty is not going away quickly, and companies are planning accordingly.”
