Construction Economic Forecast
Navigating Tariffs, Labor Gaps and a New Wave of Industrial Projects Without Losing Momentum
“We’ll start the project when prices stabilize.”
That phrase has become a mantra on job sites across the country. It’s not fear—it’s caution. And in today’s construction economy, caution is smart.
But waiting too long? That’s where opportunity slips away.
The 2025 Q2 Construction Economic Report may not be full of fireworks, but there’s a clear message: the construction industry is still moving and those who plan now will be the ones breaking ground when it counts.
Let’s take a closer look at what’s happening with labor, materials, financing and legislation and how smart contractors are setting themselves up to win in 2026 and beyond.
GDP is Slowing, But Construction Is Still a Bright Spot
Economic growth cooled a bit in Q3 projections, with GDP expected around 1.3%, down from 2.4% in Q2. That said, construction is still outperforming many other sectors.
Nonresidential construction, in particular, remains near all-time spending highs—even with slight month-to-month declines. It’s clear that while economic momentum has slowed, the construction sector is far from stalling. Business investment is simply recalibrating and preparing for what’s next.
For contractors, that means now is the time to line up labor, materials, and capital—not after the next boom begins.
Tariffs & Materials: The More You Know, the Better You Can Build
Material costs aren’t through the roof like they were in 2022, but volatility is back. Tariffs are the main culprit:
- Steel and aluminum tariffs have jumped from 25% to 50%
- Copper may soon follow with a proposed 50% tariff
- Tariff exemptions are inconsistent—some countries have deals, others don’t
The Producer Price Index shows construction material costs rose 3.1% year-over-year through May. Copper is up 2.9%, while lumber has dipped slightly. Some contractors are burning through pre-tariff inventory, but that buffer won’t last through Q4.
If your pipeline includes steel, aluminum, copper, or complex fittings, it’s time to:
- Lock in pricing where you can
- Build escalation clauses into contracts
- Stay close to suppliers for any policy updates or alternate sourcing
Contractors can handle high prices—what derails jobs is unpredictability. A proactive materials strategy helps control the narrative.
Labor: Build the Crew Before You Need the Crew
Wage growth is stable, but finding skilled tradespeople is still a challenge. The Employment Cost Index for construction climbed 2.9%, but the bigger story is who’s aging out of the workforce.
By 2030, all Baby Boomers will have reached retirement age. That includes a significant share of your most experienced crew leads, operators and estimators.
There’s no overnight fix, but plenty of contractors are taking action now:
- Partnering with trade schools or vo-tech programs
- Creating in-house training and mentorship pipelines
- Offering referral bonuses and performance-based incentives
At a time when big industrial projects are set to launch, having a loyal, well-trained crew in place could be the biggest competitive advantage you have. Our 2025 Construction Compensation Report offers benchmarking data to help you stay competitive.
The OBBBA: 100% Bonus Depreciation Could Fuel a $5–8 Trillion Construction Surge
One of the most important things to happen to nonresidential construction this year didn’t involve materials or labor—it came from Congress.
100% bonus depreciation for “qualified production property” that begins construction before Jan. 1, 2029 and is completed by the end of 2030.
In plain English? If you are building a qualifying industrial facility, you may be able to write off the entire investment in the first year.
OBBBA Fast Facts:
- Applies to new industrial/manufacturing/energy projects
- Construction must start before Jan. 1, 2029
- Projects must be finished by Dec. 31, 2030
- Ideal for facilities with 3–5 year build timelines
- Bonus depreciation applies to both equipment and building costs
Foreign and domestic investment is already lining up. Projections estimate $5 to $8 trillion in new industrial development over the next five years.
That’s not hype—it’s a timeline. And for most contractors, that means shovels need to hit dirt in 2026 or 2027 to meet the deadline.
If you want to capture OBBBA-related work:
- Start building relationships with industrial developers now
- Review your internal capacity and delivery timelines
- Consider expanding into markets where investment is expected
Financing: Still Tight, But Loosening Ahead
Credit conditions were tighter in Q2, especially for small and mid-size firms, but change is coming.
The Federal Reserve is eyeing two rate cuts: one potentially in September, the other in December. If inflation stays in check, we could see a more favorable borrowing climate by early 2026. Banks are also keeping a close eye on OBBBA-driven projects. As demand for industrial development rises, expect lenders to compete for construction deals, easing up on some of today’s stricter lending standards.
Even if you’re not seeking a loan right now, talk to your banker. Pre-approvals or flexible lines of credit could give you a critical head start in a competitive bidding cycle.
Residential Slowing = Less Pressure, More Balance
Residential construction has cooled. Single-family starts are down and monthly home supply is up—currently at its highest point since 2007. But this isn’t a red flag. It’s more of a rebalancing.
Multifamily permits are on the rise, and some custom home markets are still going strong. For nonresidential contractors, this means less competition for labor and more focus on infrastructure, energy, and commercial work.
In short: residential softness is freeing up resources for growth where it’s most strategic.
Market Hotspots: Where Growth Is Happening Now
If you’re looking for new markets or planning to expand regionally, several MSAs are seeing strong construction GDP growth:
- Salt Lake City, UT: +10.0%
- Sioux Falls, SD: +8.5%
- Detroit, MI: +7.3%
- Wichita, KS: +6.0%
These areas are seeing increased investment in advanced manufacturing, clean energy and logistics infrastructure. They’re also benefitting from regional workforce programs and incentives. Keep them on your radar.
Don’t Wait for Certainty—Build for What’s Next
Yes, the market has some moving parts. Tariffs may shift. Interest rates may drop. Labor may stay tight. But for construction business owners who plan ahead, this moment is full of opportunity.
- Rework your contracts to protect against material swings
- Start prepping now for OBBBA-related industrial work
- Stay connected to lenders as credit conditions evolve
- Invest in your team before the labor rush hits
- Watch where the growth is headed—and be ready to move
The tools are in your hands. The timeline is clear. And the groundwork you lay today will shape your success for the next five years.
Curious for more depth and data? Download the full Q2 2025 Construction Economic Report. It includes detailed analysis on GDP trends, labor and material pricing, banking forecasts, and the full breakdown of opportunity in the coming non-residential construction wave. A smart move now could be the difference between bidding and winning later.
Contact an Adams Brown construction advisor to discuss further.
