U.S. Economy Forecast to 'Reaccelerate' in 2026

While overall construction spending is expected to be flat to modestly up by about 1% in 2026, the real story is in the shifting mix of project types. Growth will be concentrated in specific segments like data centers, power infrastructure, and transportation projects, while areas like private multifamily and traditional office construction are expected to face significant pressure. The push for AI and digital infrastructure is a primary driver of this shift, with investments in data centers and the supporting power and water systems growing at a much higher rate than the industry average. This boom in AI-related construction is expected to continue supporting the engineering and construction sectors through 2026. The global market for AI in construction is projected to reach $6.2 billion in 2026 and is estimated to grow to $32.0 billion by 2033. This targeted boom, however, is creating a high demand for skilled labor in concentrated markets, which could tighten labor availability and stretch project schedules even for companies not directly involved in data center construction. The construction industry is projected to need an additional 349,000 new workers in 2026 to meet demand, a figure that is expected to rise to 456,000 in 2027. A significant portion of this demand is driven by the need to replace retiring workers. For residential contractors, the outlook is buoyed by strong demand for remodeling. Many homeowners are choosing to stay in their current homes due to higher mortgage rates, and are instead investing in renovations. Kitchen and bathroom remodels, along with whole-house renovations, were the most common projects in 2025. This trend is expected to continue, with residential remodeling activity projected to increase by 3% in 2026. On the fiscal front, a combination of business and consumer tax cuts is expected to provide approximately $285 billion of stimulus in 2026, which represents nearly 1% of the total GDP. For consumers, this will largely arrive in the form of tax refunds, with an estimated 44% aggregate increase in refunds compared to the previous year. Despite the overall positive outlook for specific sectors, the industry still faces challenges from rising material costs and persistent labor shortages. Construction wages have continued to climb, with average hourly earnings reaching $40.55 in January 2026, a 3.8% increase from the previous year. This, combined with construction inflation projected to be between 4% and 5% in 2026, will continue to put pressure on project budgets.