In ConstructConnect’s latest Construction Economy Outlook Spring 2025 webinar on May 8, economic experts Kermit Baker, chief economist, American Institute of Architects; Ken Simonson, chief economist, Associated General Contractors of America; and Michael Guckes, chief economist, and Fonda Rosenfeldt, vice president content acquisition, ConstructConnect, presented their insights on the ongoing economic landscape affecting construction.
The latest market forecast data from the webinar paints a sobering picture for the construction industry, with trade tariff impacts, current inflation trends, labor challenges, material costs, and softening demand shaping the landscape. Industry stakeholders must navigate these challenges while strategically planning for future growth amid these pressing headwinds. By focusing on workforce development, embracing innovative project planning, and remaining agile in their business strategies, companies can better position themselves for success, despite the uncertainties ahead.
SH 01. Ongoing trade tariffs with China
The conversation opened with an emphasis on the trade tensions with China, highlighting that China remains a focal point for future tariff battles. Many products imported from China are currently subject to high tariffs, which, coupled with a drastic decrease in the importing of various goods, threatens the supply chain. “China currently makes almost one out of every three physical products in the world... more than the U.S., Germany, Japan, South Korea and Britain combined,” says AIA’s Kermit Baker.
The ramifications extend beyond imports. Tariffs could significantly impact U.S. exports to China in sectors such as high-tech equipment. Tariff-related realities may lead to a dip in exports as responses from China could include counter-tariffs on U.S. goods. “Exports are likely to disappear with Chinese retaliating to tariffs,” adds Baker. “And imported inputs to construction are close to double the industry average for education and health care... about half the non-residential building average for residential products.”
“Tariffs will cause at least a one-time bump in materials cost,” adds AGC’s Ken Simonson, “but the more dangerous effect is what countries do in response.”
SH 02. Labor shortages in the construction sector
A prominent theme discussed was the looming labor shortage facing the construction industry. According to Baker, the U.S. construction workforce comprises approximately 12 million workers—about one-quarter of whom are foreign-born. Alarmingly, around half of these workers are undocumented, signifying an over-reliance on immigrant labor.
The industry is currently witnessing a labor shortage projected at approximately 500,000 workers, potentially worsening as immigration policies become stricter. This severe shortfall underscores an urgent need for workforce development to meet the growing demands of construction projects. “Construction is disproportionately more dependent on foreign labor than a lot of our peer industries,” says ConstructConnect’s Michael Guckes.
Construction employment is experiencing growth but at a slowing rate, with a 1.7% overall increase from April 2024 to 2025, according to Simonson. Non-residential construction is leading this growth at 2.9%, while residential construction has flattened out lately. “All of the [construction segments] are still growing but clearly slowing... the latest figures show that from April of 2024 to April of this year, construction employment overall grew at a 1.7% clip.”
And the hiring percentage in construction is at its lowest since the survey began, indicating a pause in current construction activity. Job openings are also declining. “The 2025 figure was the lowest... also shows that firms not only are not hiring now, they’re not even looking to hire at the extent that they had been, says Simonson.”
The unemployment rate is expected to rise in both the U.S. and Canada due to economic challenges, according to Guckes, with Canada facing a significantly higher rate. “The unemployment rate here does move significantly higher as opposed to our U.S. outlook... 7.5% this year.”
SH 03. Slowdown in the architecture and design industry
The architectural sector is experiencing inconsistent billings and a soft business environment, since late 2022. According to the Architecture Billings Index, project inquiries and design contracts have seen significant volatility, with recent months indicating discouraging trends. This reflects uncertainty in the architecture and construction sectors, where billings are unlikely to see a substantial improvement in the near term.
“Billings and architecture firms have been soft since really the end of 2022, but became weaker and more volatile beginning around the third quarter of 2023,” says Baker. “The recent scores since the beginning of the year have been disappointing. First-quarter ABI scores were the lowest since the pandemic.”
SH 04. Construction spending forecasts
The construction spending outlook portrays a challenging future. For the coming years, forecasts suggest slow growth across various categories, with expected increases of about 2% to 3% in non-residential construction spending amid economic headwinds. While some marginal recovery might occur, particularly in data centers and health care, overall spending will likely struggle to keep pace with inflation rates.
While single-family construction is expected to gradually pick up, multifamily and office buildings are likely to decline, according to Simonson. The overall outlook is complicated and somewhat pessimistic due to the industry’s reliance on immigrant labor and the effects of tariffs. “It’s a complicated outlook... [immigration] having been almost completely shut off, perhaps a negative on a net basis as people leave the country either voluntarily or through deportations. Many states that had been growing, may not grow, and that could have negative consequences.”
“Overall, spending on non-residential building is projected to increase just over 2% this year, not much better for 2026, so probably not even keeping pace with cost increases that they’re seeing out there,” says Baker. “The commercial sector is expected to be weak this year before increasing a bit as we move into 2026 manufacturing, so [expect] slow growth this year followed by a comparable decline next year.”
Guckes says there has been a 1.5% drop in construction activity across sectors, with a notable reduction in residential and non-residential building sectors. “We ended last year down 1.5%... total construction right now is still down 13% compared to the first quarter of 2024.” And while he projects the U.S. will see a modest rebound in construction activity by 2026, Canada will experience ongoing challenges until a recovery in 2027. “Down 1.8% this year for the U.S.... down over 8% for Canada this year,” Guckes adds.
However, certain sectors within construction are expected to grow, including data centers and health care facilities, while others like manufacturing and transportation are likely to see declines.
Key Points
- Multifamily and office will see declines through 2025 due to high costs and weak demand.
- Data centers are still a good bet for growth in the coming year.
- U.S. private sector bidding is down by 3.8% over last year, Canadian private bids decreased by 10.4%.
- U.S. public sector bids increased 3.4% over last year, Canadian public bids down by 6.5%.
- U.S. planning is down by 3.6% and private planning rose by 15%, while Canadian private planning is down 14%.
- Single-family will see a gradual pickup if mortgage rates don’t spike.
SH 05. Insights on project planning and mega projects
Moving towards project planning trends, data shows a notable downturn in private-sector bids while public sector initiatives may see modest growth. Mega-project expectations remain high, with significant investments—such as a $17 billion data center in Georgia—anticipated in the upcoming year. However, lengthy development timelines pose challenges, especially for private projects linked to retail and hospitality sectors, which are being approached more conservatively.
Even data centers are experiencing flat planning in Canada, and a 10% decrease in the U.S. due to complexities and long development cycles. “We are expecting that $120 billion in mega projects are scheduled to begin, but public spending right now is driving activity and private work is cautious, but growing,” says Fonda Rosenfeldt.
SH 06. Geographical variations in construction activity
An analysis demonstrated geographic disparities in construction employment and activity. Certain regions, particularly Atlantic states like New York and New Jersey, are witnessing more favorable conditions compared to the West Coast and specific mountain states, where slowdowns in hiring and construction output are prevalent. “One of the strongest areas we’re seeing right now is the Atlantic region,” says Guckes.
SH 07. The Future: Increased costs and competitive pressures
Looking forward, construction firms are expected to grapple with increased costs primarily due to supply chain pressures and tariffs. Predictions suggest a wage increase of 4% to 5%, particularly due to labor market constraints associated with immigration policy shifts. This trend could create upward pressure on wages throughout various tiers in the construction industry.
