Q2
2025
the look
ahead
Non-residential construction cooled in Q2, but strong labor retention and resilient sectors like data centers and healthcare are holding the line amid rising costs and shrinking backlogs.
Construction Headwinds: Economic, Financial, and Labor Pressures
National Market Overview
The second quarter presented a mixed picture for non-residential construction, marked by a general slowdown. Labor challenges persist, but widespread layoffs have yet to materialize—a sign that companies are holding on to skilled workers even as demand softens, given the difficulty of replacing those roles.
Our latest survey indicates most trades continue to face rising labor and material costs, even as backlogs shrink and bid competition intensifies. Input prices have increased, but not to the levels anticipated earlier in the year when tariff concerns loomed large.
What’s keeping costs in check? Three key factors stand out:
- Inventory cushions that help stabilize supply
- Price absorption, with many firms planning only gradual increases
- Shifts in consumer spending, particularly away from discretionary categories
Despite these challenges, pockets of strength remain in markets like advanced manufacturing, data centers, healthcare, and power and infrastructure.
Looking ahead, the industry faces potential risks from persistent inflation and possible labor market deterioration, both of which could shape the outlook for the remainder of 2025 and into 2026.
Construction
Indicators
While pricing has remained steady, slight escalation, growing backlogs, and ongoing labor shortages point to mounting challenges as tariffs begin to drive expected cost increases.
For construction, this means that even if underlying demand exists, the unpredictable nature of tariffs, interest rate policies, or other regulations can paralyze investment decisions, leading to project delays or cancellations, regardless of underlying market need.
Economic Uncertainty Clouds Outlook for Construction
Amid economic uncertainty, the construction industry faces a uniquely challenging environment shaped by delayed investments, fluctuating demand, and unpredictable trade policy shifts. In this spotlight, JE Dunn economist Will Roberson unpacks how these macroeconomic pressures are reshaping project pipelines, slowing starts, and forcing firms to rethink strategy in real time.
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