By Macrina Wilkins, Director of Market Insights, and Ken Simonson, Chief Economist, Associated General Contractors of America
Contractors in the United States headed into 2026 with a more cautious outlook than in recent years. While most firms remain busy and see opportunities ahead, expectations about market growth have softened across nearly all project types.
The Associated General Contractors of America’s (AGC’s) annual Construction Hiring and Business Outlook Survey, conducted in partnership with Sage, provides the clearest snapshot of this shifting environment, capturing contractor views on demand across market segments, workforce conditions, backlogs, bidding prospects and other operating realities that shape performance. The 2026 survey drew a total of 951 responses from firms of all types and sizes, though not every respondent answered every question.
This year’s results show far more mixed expectations than last year’s. While pockets of optimism remain in select private-sector markets, overall sentiment has dampened.
This year’s results show far more mixed expectations than last year’s. While pockets of optimism remain in select private-sector markets, overall sentiment has dampened. In the 2025 survey, only two of the seventeen covered market segments posted negative net readings. A net reading represents the share of respondents who expect the available dollar value of projects to expand minus the share who expect it to shrink. This year, net readings were negative for five segments, reflecting broader caution.
Contractors were most optimistic about data centers, which posted the strongest outlook by a wide margin and the largest year-over-year gain. Specifically, 65 percent expected the data-center market to expand in 2026, compared to 8 percent who projected it to shrink, for a net reading of 57 percentage points. The net reading jumped by 15 points from a year earlier, when data centers were also the category registering the highest positive reading.
The only other segment showing a stronger outlook than in 2025 was power projects. The net reading for power projects improved by two points, from 32 to 34, in the 2026 survey.
There were also solidly positive expectations for healthcare projects, with only small declines in net readings. The reading for hospital construction was 20, down just four points from the previous survey. The reading for other healthcare projects (such as clinics, testing or screening facilities, or medical laboratories) slipped just three points to 24.
For most other project types, net readings slumped by 10 percentage points or more, marking a large drop in confidence. Nevertheless, readings remained moderately positive (between 10 and 16) for water/sewer, manufacturing, transportation (such as airports, railways and transit projects) and bridge/highway construction. In addition, contractors remained slightly more optimistic than pessimistic, with readings between 1 and 5, for four project types: work for federal agencies (military and civilian), warehouses, multifamily housing and public buildings.
The net sentiment was negative for five segments, including three for which contractors expressed net optimism in the 2025 survey. Net readings turned slightly negative for school construction (-1), higher education projects (-5) and lodging (-7). And the outlooks soured even more from the 2025 negative readings for private-office construction (-14, compared to -3 in the 2025 survey) and retail projects (-18, compared to -5 previously).
Despite the overall drop in expectations, three-quarters of firms were at least moderately confident in their backlog and bidding prospects. But one in three reported smaller backlogs than a year ago.
Owners’ reluctance to proceed with projects was a widespread issue. Nearly two-thirds (63 percent) of respondents reported having had at least one project canceled, postponed or scaled back in the previous six months. (The survey was conducted from November 4 to December 15.) The most frequently mentioned reason for holdups, cited by 37 percent of respondents, was lack of funding or funding uncertainty (federal, state or private). Nearly as many participants reported that financing was unavailable or too expensive. In addition, 23 percent cited increasing materials or labor costs.
A newly cited reason for project disruptions was changes in demand or need due to tariffs. While only 13 percent of respondents listed this as a reason for delays or cancellations, roughly 70 percent reported that their firms had been affected by actual or proposed tariffs.
The most common response to tariffs was to raise bid prices, reported by 40 percent of firms. Approximately one-third of firms passed most or all tariff costs on to the project owner (35 percent) and/or accelerated purchases (32 percent). Only 11 percent reported having absorbed most or all tariff costs.
Labor shortages remained pervasive. More than four out of five firms reported difficulty filling positions, with 82 percent struggling to hire hourly craft workers and 80 percent struggling to fill salaried roles, the highest levels reported in the past three years. Concerns about labor supply, cost and quality were among the most frequently mentioned major concerns for 2026. While the most-cited concern was a potential economic slowdown (listed by 62 percent of firms), the next three most-cited concerns were all labor-related: 57 percent listed an insufficient supply of workers or subcontractors, 56 percent cited rising labor costs and 53 percent specified worker quality.
In addition to tariffs, immigration enforcement also rose in importance as a concern in the 2026 survey. One out of three firms reported being affected directly or indirectly in the previous six months. Specifically, 6 percent stated that a jobsite or offsite location (such as an office) had been visited by immigration agents, while 11 percent said workers left or failed to appear because of actual or rumored immigration actions. In addition, 24 percent noted that while they had not been directly affected, subcontractors had been. (Some firms reported multiple types of activity.)
These percentages are quite similar to those reported in the 2025 AGC-NCCER (National Center for Construction Education and Research) workforce survey, which was conducted in July and August. That fits with media reports that the Department of Homeland Security (DHS) had shifted its focus away from jobsites and toward community enforcement following a large raid on a Hyundai construction site in September.
However, the construction industry remains vulnerable to a resumption of jobsite actions. Data from the U.S. Census Bureau’s 2024 American Community Survey (ACS) indicates that 35 percent of construction-trade workers were foreign-born, nearly double the 18-percent immigrant share of the overall workforce. (The data does not include information on legal status.) That makes construction a potential target, particularly since the DHS is in the midst of a large boost in recruiting, training and equipping immigration-enforcement personnel.
While not the headache they were a few years ago, supply-chain issues persisted for the majority of contractors. Only 45 percent of firms reported not having any significant supply-chain problems in 2025. The most commonly reported strategy for dealing with the issue, mentioned by 41 percent, was to accelerate purchases after winning contracts. In addition, 29 percent turned to alternative suppliers, and 24 percent specified alternative materials or products.
As in past surveys, the most frequently mentioned supply-chain problems centered on electrical equipment, particularly switchgears, transformers, generators, control systems and other components used to distribute and manage power, many of which remain long-lead items that can extend project schedules. Heating, ventilation and air conditioning (HVAC) and mechanical systems—including chillers, air-handling units, controls and insulation—also appeared prominently. Contractors additionally cited challenges with steel and other metal-based products, ductile iron fittings, specialty valves, and select precast and underground materials.
Several respondents specifically pointed to tariff exposure and sourcing requirements under the Build America, Buy America Act (BABA) as drivers of higher costs and longer lead times, especially for electrical, mechanical and water-related products. Overall, the wide range of materials mentioned suggests that while supply chains have improved following earlier disruptions, constraints remain uneven and are increasingly tied to lead times, specifications and compliance requirements rather than broad material shortages.
In sum, contractors see more limited opportunities in 2026 than a year earlier. They face heightened risks of project disruptions, particularly from immigration enforcement and owner hesitancy about committing to projects. Nevertheless, expectations remain positive on balance for most project types.
Ken Simonson has been the Chief Economist of the Associated General Contractors of America (AGC), the leading trade association for the construction industry in the United States, since 2001. A Fellow and past President of the National Association for Business Economics (NABE), Simonson holds a Master of Arts in Economics from Northwestern University.