Injections of federal funding, coupled with pent-up demand from the pandemic shutdowns, created a robust construction market in 2022 and 2023. In 2024, signs of market softening began and continues into 2025. The Associated Builders and Contractors (ABC) reports that its backlog indicator, which reflects the work commercial and industrial contractors have coming in the months ahead, shows a drop in monthly backlog from 8.9 months in 2023 to 8.3 months in 2024 and has fluctuated around that number throughout the first half of 2025.
The Associated General Contractors (AGC) reports that, year-over-year gains in employment slowed sharply from the previous 12 months and private residential and nonresidential outlays declined from May and June 2024, offsetting small gain in public spending. AGC pointed to ongoing tariff and labor uncertainty as the reason many construction owners may be scaling back planned projects.
Inflation eased in the first half of 2025 hitting a four-year low of 2.3% in April but inched up to 2.4% in May as tariffs started to impact prices. U.S. and global tariff policy was in flux throughout the first half of 2025 and seems likely to continue to have at least some variability that will impact construction firms of all sizes. The producer price index for materials and services used in nonresidential construction rose 0.2 percent in June and 2.3 percent from June 2024, the largest 12-month increase since February 2023, AGC’s analysis of government data shows. AGC cautioned that tariff increases scheduled to take effect on August 1 threaten to drive up a wide range of construction costs that could further undermine demand for construction.
“The fact that construction materials prices are rising even before the steepest proposed tariffs have taken effect doesn’t bode well for what will happen in August if the promised new tariffs are implemented,” said Ken Simonson, the association’s chief economist. “Rising construction costs and economic uncertainty are already causing some owners to put projects on hold, which will only get worse if costs jump again.”
Simonson noted that tariffs on steel and aluminum were hiked to 50 percent on June 4 from the 25 percent rate that took effect on March 12. President Trump has announced a 50 percent tariff on copper to take effect on August 1. In addition, the president has threatened to impose much higher tariffs on most imports from almost all of the nations that supply vital construction materials.
Construction firms continue to remain focused on securing the materials they need to complete projects on time and within budget. Many companies have shifted away from “just-in-time” to “just-in-case” supply chain management and are better able to absorb periodic disruptions that continue to crop up.
Construction companies continue to struggle to find skilled labor. According to the National Center for Construction Education and Research (NCCER) the average age of craft workers was 42.9 years in 2020, already above the average general age of citizens in the U.S. of 38.5. However, the labor shortage extends beyond the trades to include professional staff. While technology can help address the labor shortage on the professional staff side of the business, many construction companies are actively engaged in workforce development initiatives designed to expand the talent pipeline in the building trades.