Q1 2026 Construction Update: Reshoring Trends, Tariff Rulings & Construction Slowdown

1. Is the Construction Boom Really in Just Three Sectors?

Depending on whom you speak to, the construction sector is either “the best in my lifetime” or “fair to partly cloudy”. In reality, both are true statements. Large general contractors have filled their pipelines with mega data center and power generation projects, many of which are reporting that they are full well into 2027. And that has also pushed some projects that they would have historically looked at down into mid-tier contractors who are also now filling up their pipelines. But that doesn’t tell the whole story.

Between data center construction and power generation, they account for 17-19% of total nonresidential construction on a spending basis. Data center construction is now estimated to be $65B-$70B (growing to $80B perhaps this year) while power generation is roughly $158B. Between the two, they account for nearly 90% of the growth in nonresidential, but they don’t account for all of the spending.  Among the $1.2 trillion in total nonresidential spending, manufacturing makes up another 25% on its own. Combined, those three sectors now account for more than 50% of total nonresidential spending.

Other sectors including traditional office, commercial, health care, education, and traditional civil construction are still “holding their own”, but they aren’t growing at a rapid clip. Therefore, client activity is going to be mixed. It is true that some clients have more business than they can handle while others are struggling against flat volumes and little project work. If they don’t have some connections or expertise in data centers, power generation, or manufacturing construction, they are fighting over sectors that are flat at best. 

​Additional Reading: https://www.jll.com/en-us/insights/market-outlook/data-center-outlook

2. Construction Labor Availability and Wages Growing Pain Point for Firms.

A quick interview with a construction executive about pain points in their operations will reveal that finding and retaining quality talent is still one of their greatest challenges. The latest Employment Cost Index through Q4 showed annual wages growing at 4.3% Y/Y, one of the fastest growth rates among all sectors. This is largely due to a worker shortage that existed prior to deportations and one that was exacerbated because of heavier deportation activity.

Data on job openings in the construction sector through December (latest available) show them up 42.4% to 292,000 (up 2.8% M/M). This is the largest annual pace of growth since coming out of the pandemic lockdown in 2021. Reports in some regions indicate that projects are on hold and general contractors could be taking on more projects (more demand than capacity to do those projects) if there was available talent. And as mentioned earlier, the result is an annual wage growth percent that is robust.

Lastly, consider this labor tightness with a residential housing market that is essentially stalled. If interest rates ease and the housing market “takes off”, that will tighten the labor environment even more so.

Source:  https://fred.stlouisfed.org/series/ECICONWAG ; https://fred.stlouisfed.org/series/JTS2300JOL