The construction industry needs about 349,000 net new workers by 2026, according to a new Jan. 15 report from the Associated Builders and Contractors, down from recent years, reflecting reduced demand but not solving labor shortages.
The estimate marks the lowest annual labor gap the association has projected since 2021. However, ABC chief economist Anirban Basu said the smaller number should not be seen as a turning point for labor availability. Instead, it points to a cyclical slowdown in construction activity at the top of a workforce still constrained by demographics, retirements and skills mismatches.
“Nothing changed in the model,” Basu said in an interview with ENR. “What has changed is the cycle. There is a structural component linked to retirements and demographics, and a cyclical component linked to demand. The cyclical side has softened.”
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More than half of the 349,000 workers needed in 2026 will only need to replace retirees rather than support incremental growth, Basu said. About 20% of the construction workforce is over 55, and departures linked to age, physical demands and occupational activity continue to outpace the entry of younger workers, even as interest in skilled trades improves.
Construction demand has also slowed significantly. Basu said nominal construction spending declined by about 1.5 percent over the past year, which translated to about 5 percent in real terms after inflation. Under normal conditions, this level of contraction would reduce the demand for labor if productivity remains stable.
Basu’s confidence that the easing is genuine, he said, comes from the alignment of leading indicators. Construction job openings have trended lower, and architecture firms, the upstream pipeline for future work, have seen turnover weaken steadily for nearly two years.
Non-residential construction spending remained strong through 2025, although construction job openings declined, underscoring ABC Chief Economist Anirban Basu’s assessment that the easing of hiring pressure reflected a cyclical slowdown in demand rather than a resolution of structural constraints on the sector’s workforce.
left axis: Nonresidential construction spending: US Census Bureauright axis: Construction Job Openings (Index, 2022 = 100) – US Bureau of Labor Statistics (JOLTS)
” data-description=”Non-residential construction spending remained high through 2025, even as construction job openings declined, underscoring ABC Chief Economist Anirban Basu’s assessment that the easing of hiring pressure reflected a cyclical slowdown in demand rather than a resolution of the industry’s structural workforce problems. unfilled positions as tighter financing conditions, longer hours and greater employer caution moderated labor demand despite sustained spending. LEFT AXIS: Nonresidential Construction Spending — US Census Bureau RIGHT AXIS: Construction Job Openings (Index, 2022 = 100) — US Bureau of Labor Statistics (JOLTS)” data-id=”display 43″ float: none; vertical-align: top; margin: 5px auto; text-align: center;” alt=”Chart shows non-residential construction spending remains high through 2025 as construction job openings fall.” date-uuid=”YTAtMjM0NjI4″>.
The intersection of the two trend lines in late 2023 marked the point where strong project activity began to coincide with fewer vacancies as tighter financing terms, longer hours and greater employer caution moderated labor demand despite sustained spending.
left axis: Nonresidential construction spending: US Census Bureau
right axis: Construction Job Openings (Index, 2022 = 100) – US Bureau of Labor Statistics (JOLTS)
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The slowdown, however, is uneven and does little to ease the execution risk of the projects that now dominate construction spending.
Data from the U.S. Census Bureau shows nonresidential construction spending rising steadily from early 2022 to late 2025, even as labor demand begins to cool, an upbeat ABC chief economist Anirban Basu attributes to a cyclical slowdown rather than a structural fix.
Chart courtesy of US Census Bureau; analysis by Associated Builders and Contractors
Basu said labor shortages remain acute enough to threaten schedules in most segments, particularly data centers, industrial megaprojects and major public works, where shortages of skilled trades, particularly electricians and mechanical workers, have become binding constraints on delivery.
Hyperscalers racing to build artificial intelligence infrastructure are struggling to secure electricians capable of precision wiring and mechanical workers trained to install advanced cooling systems, he said, delaying schedules even as overall labor demand softens.
“These facilities need to be cooled aggressively, often using new technologies,” Basu said. “There aren’t that many workers who can do this job quickly and satisfactorily.”
Public infrastructure faces similar pressure. While highway, water and sewer work remains active at the end of the federal infrastructure funding cycle, Basu said labor concentration around megaproject hubs is forcing contractors to import crews from other regions, easing shortages locally, creating secondary gaps elsewhere and expanding schedules more broadly.
Beyond labor availability, Basu warned that the financial foundations of the AI-driven construction boom may prove fragile. He said the first waves of data center investment were largely financed through free cash flow, but the scale of today’s facilities has pushed hyperscalers toward debt financing at a time when construction costs are rising.
“If these projects don’t provide a return on investment relatively quickly, you could see a sharp pullback,” Basu said. “The higher the construction costs, the more debt will be needed to finance them.”
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The changing demand landscape is also reshaping competition within the industry.
ABC’s contractor backlog data shows that large general contractors tied to megaprojects continue to post strong or stable backlogs, while many small and medium-sized businesses, particularly those exposed to office, retail, residential and local commercial work, are seeing backlog declines.
Construction spending and employment forecasts from Associated Builders and Contractors show that while total U.S. construction spending is expected to remain elevated through 2026, job growth is flattening, so the industry needs to add roughly 349,000 net new workers next year to offset retirements and maintain capacity. The shaded range reflects the high, base, and low economic scenarios modeled by ABC.
Graphic courtesy of Associated Builders and Contractors
ENR reports on ABC’s Construction Backlog Indicator shows that contractors with more than $100 million in annual revenue are carrying their highest backlog since 2021, while companies with less than $30 million are reporting their lowest levels over the same period.
Basu described the result as a K-shaped construction economy, where a small group of companies continue to have record years, while a wider population faces longer bid lists, greater competition and growing concerns about the availability of work.
“Some companies aren’t as nervous about this year because they saw there was a delay,” Basu said. “They are much more nervous about 2027.”
This concern is reinforced by ABC’s long-term outlook. After a steady decline between 2022 and 2026, the association’s model shows the industry’s annual need for net new workers rebounding strongly in 2027, driven by assumptions that interest rates eventually fall below key behavioral thresholds and that a wave of announced data center and industrial projects move from planning to active construction. Basu stressed that the rebound is hypothesis-driven, not guaranteed and highly dependent on financing conditions and project follow-up.
The current slowdown, he said, gives contractors a narrow but valuable window to prepare. Companies that use the break to hire selectively, invest in training and upgrade their workforce, especially in high-demand skilled trades, will be better positioned when the next upgrade cycle arrives.
“There will be companies ready for that moment,” Basu said. “The others won’t be.”
