The commercial construction industry enters 2026 with significantly tempered expectations compared to last year, according to the recently released Associated General Contractors of America's annual Construction Hiring and Business Outlook Survey. While data centers and power facilities offer pockets of optimism, the survey reveals a sector grappling with persistent labor shortages, economic uncertainty, and compressed profit margins.
The survey marks a notable shift from 2025's more optimistic outlook. This year, five market segments posted negative readings—up from just two last year—signaling contractors' growing caution about the year ahead. An economic slowdown or recession emerged as the top concern, cited by 62% of firms surveyed.
Data centers drive growth
Despite broader concerns, data center construction stands out as the industry's strongest growth area, with a net reading of 57%—meaning 65% of respondents expect this market to increase versus just 8% who expect it to shrink. This represents the only segment to post double-digit gains from last year's survey.
"We're really at the beginning of the whole AI revolution," says Julie Adams, vice president of construction at Sage. "It's fundamentally going to change everything, and I don't think we're anywhere close to turning the corner in terms of the ramp-up."
Ken Simonson, AGC's chief economist, noted that data centers are appearing nationwide as developers seek locations with available land, water and power. "Data centers keep getting bigger, more complex," says Simonson, expressing confidence the boom will continue through 2027.
Power projects also show strength with a 34% net positive reading, alongside hospitals, health care facilities, and water and sewer infrastructure—though optimism for these segments has declined from 2025 levels.
Labor shortages intensify
The workforce crisis remains acute, with 82% of firms reporting difficulty filling hourly craft positions and 80% struggling to find qualified salaried workers—the highest percentages in three years. The foreign-born workforce, which comprises 35% of construction craft workers nationally (double the 18% rate across all U.S. industries), faces additional pressure from enhanced immigration enforcement.
One-third of firms reported being affected by immigration actions in the past six months, with workers disappearing or subcontractors being impacted. "The backbone of our industry... is our blue-collar workers," says Jim Rhodes of Wayne Brothers Companies. "We have to make sure we value the people who are putting that work in place."
Local initiatives show promise. Arch Willingham of T.U. Parks Construction highlighted Chattanooga's Construction Career Center, which raised $10 million and graduates 100-125 students annually, all with jobs waiting upon completion.
Markets turn negative
Several sectors have shifted from positive to negative outlooks. K-12 construction dropped from 13% positive to -1%, while higher education fell from 12% to -5%. Lodging, private office and retail construction posted the three most negative readings, with retail hitting -18%.
More than 60% of respondents reported projects being postponed, scaled back or canceled in the past six months, with one-third citing unavailable or expensive financing as the reason.
Cautious optimism persists
Despite headwinds, nearly two-fifths of firms report their current backlog is larger than last year, and a majority plan to increase headcount in 2026. Contractors also show growing interest in artificial intelligence, with 61% using AI or planning to increase investments—up from 44% last year.
Kyle Van Slyke of Musselman and Hall Contractors characterized the mood in the Midwest as "steady optimism," while Rhodes noted his firm remains "cautiously optimistic" based on client conversations and lending activity.
AGC is pushing Congress and the Trump administration to extend infrastructure funding, expand legal temporary work visa pathways for construction, implement permitting reforms, and provide clarity on tariff policy to help stabilize the industry's outlook.
