Growth is expected throughout 2026, but rising interest rates and the effects of tariffs and immigration are sources of “real risk,” Anirban Basu, chief economist at Associated Builders and Contractors, explained in a midyear economic update webinar on July 8.
Between June 2024 and June 2026, construction employment increased by 1.6% overall, largely due to data center construction, which continues to dominate the sector. Overall, non-residential employment rose 4.5%, while residential construction employment fell 2.5%. “The industry is busy, but it’s unbalanced,” Basu said, noting that contractors have told him that data center construction makes up 35 percent of their work, up from 5 percent just a few years ago.
Many other segments, however, are being held back by high interest rates and high material costs, leading to an overall 3.8% drop in construction spending year-over-year to May 2026. Manufacturing fell 21.9%, which Basu attributed to the expiration of the Biden-era CHIPS and Science Act that provided several years of subsidies in this sector. Hotel construction also fell, at a rate of 10.7%. “Hotel occupancy is up and hotel construction is down,” Basu said, due to high labor and material costs.
Overall, material costs have increased by 55.5% since February 2020, the last month before the COVID-19 pandemic. This is largely due to more recent events, such as the conflict in Iran, which caused the prices of crude oil and crude energy materials to rise, at a rate of 128.5% and 116.4%, respectively. Tariffs also played a major role as prices of non-ferrous wire and cable increased by 91.4% and steel products saw a price increase of 86%.
For the rest of 2026, “I think there is enough demand among artificial intelligence [and] corporate investment … to sustain the U.S. economy from a higher GDP perspective, but there are some real risks, including construction,” Basu said, particularly an interest rate hike in 2027.
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