Contractors also report they have been impacted by tariffs, enhanced immigration enforcement, and challenges finding qualified workers
Construction contractors have dampened expectations for 2026 amid broader worries about the direction of the economy, according to Dampened Expectations: The 2026 Construction Hiring and Business Outlook, a new report by the Associated General Contractors of America (AGC) and Sage.
“While there are pockets of optimism in select private-sector markets, contractors’ overall sentiment has dampened notably compared to last year,” said Jeffrey Shoaf, the association’s chief executive officer. “One reason for their lowered expectations is that contractors are increasingly worried about the broader economy, the possibility of a recession, and the outlook for materials costs.”
Where growth is expected
The report measures contractors’ expectations for different market segments via a net reading—the percentage of respondents who expect the available dollar value of projects to expand compared to the percentage who expect it to shrink. The highest net reading, 57%, is for data centers. Contractors remain bullish about power projects as well, which recorded a net reading of 34%.
Contractors are moderately optimistic about hospitals, other healthcare facilities, water and sewer, and manufacturing. Within healthcare, non-hospital facilities, including clinics, testing facilities, and medical labs, recorded a net reading of 24%, followed by hospital construction with a net reading of 20%.
The net reading for construction of transportation structures, such as airport and rail projects, dropped from 29% to 11% during the past year. Net readings also declined—but remained modestly positive—for warehouse, federal work, multifamily residential projects, and public building.
Expectations for contracts for federal agencies such as the General Services Administration (GSA), Department of Veterans Affairs (VA), U.S. Army Corps of Engineers, and the Naval Facilities and Engineering Command fell from 22% to 5%, while the multifamily residential net slid from 12% to 4%. The net for public building dropped from 14% to 1%.
Where decline is expected
The net reading for K–12 construction declined from 13% in 2025 to -1% in this year’s survey. Higher education slipped from a net of 12% to -5%. Expectations for education construction have been weakening for several years, with both K–12 and higher education showing decelerating growth since 2022, aside from a brief uptick in higher education in 2024.
Expectations for lodging, private office, and retail construction represent the three most negative segments for 2026. The net reading for lodging fell from 7% in 2025 to -7% in this year’s survey. Private office declined by 11 points to -14%, while retail dropped 13 points to -18%.
Broader concerns
Respondents were asked to identify their biggest concerns for 2026. An economic slowdown or recession emerged as their most-often mentioned concern, cited by 62% of firms. The next three most cited concerns were workforce related: 57% of respondents cited insufficient supply of workers or subcontractors, 56% selected rising direct labor costs (pay, benefits, employer taxes), and 53% identified worker quality.
Many contractors also noted being impacted by new tariffs and enhanced immigration enforcement.
Roughly 70% of firms report being affected by tariffs this year. Forty percent report responding to actual or proposed tariffs by raising bid prices, and 20% of firms added price-sharing adjustments or other terms to contracts. While 35% report passing most or all tariff-related costs on to project owners, 11% say they absorbed most or all tariff costs.
One-third of firms (33%) report having been affected by immigration enforcement actions in the past six months. Six percent report a jobsite or offsite was visited by immigration agents. Eleven percent report workers left or failed to appear because of actual or rumored immigration actions, and 24% report subcontractors lost workers.
In addition, over three-fifths (63%) of respondents report that an owner postponed or canceled a project in the past six months. When asked why, 37% cited a lack of funding or uncertainty about a funding source, whether federal, state, or private. More than one in three firms (34%) said project financing was unavailable or too expensive. Just under a quarter (23%) of firms said increasing material or labor costs played a role.
Among the association’s top priorities this year is continuing to urge the administration and Congress to address workforce shortages through expanded lawful, temporary work visa programs for construction and increased investment in workforce development. And they are calling for greater clarity and restraint around tariff policy and for practical permitting reforms to reduce delays.
“With supportive infrastructure funding, workforce, trade and permitting policies in place, construction can continue to grow the economy, deliver essential projects, and expand access to high-paying career opportunities,” Shoaf said.
Despite their broader concerns, most firms (63%) anticipate adding workers in 2026 to meet the needs of current and planned projects, compared to only 15% that expect to decrease their headcount. However, more than four out of five firms report having a hard time filling hourly craft positions (82%) or salaried openings (80%)—a higher proportion than at any point in the past three years.
This is an adaptation of a Jan. 8 News Release by the Associated General Contractors of America. Click here for the full Dampened Expectations: The 2026 Construction Hiring and Business Outlook report, and here for the survey results. Click here to watch a quick video about the results.
About Associated General Contractors of America (AGC)
The Associated General Contractors of America is an organization of qualified construction contractors and industry related companies dedicated to skill, integrity, and responsibility. Operating in partnership with its chapters, the association provides a full range of services satisfying the needs and concerns of its members, thereby improving the quality of construction and protecting the public interest.
