Construction Industry Economic Update: Key Takeaways from the Latest CICPAC Newsletter
Published on by Ian Eberts in Construction
The latest CICPAC Economic Newsletter paints a familiar but nuanced picture for the construction industry. While recent headlines point to uncertainty, the data tells a more balanced story. Beneath the surface volatility, construction fundamentals remain resilient, particularly in nonresidential sectors positioned for long-term growth.
A mixed economic backdrop, with steady demand underneath
The recent federal government shutdown temporarily distorted economic data, pulling estimated Q3 GDP growth down from roughly 4% to about 1.5%. Even so, consumer spending has held up well, and nonresidential investment continues to be a bright spot. Spending remains especially strong in data centers, power generation, and manufacturing, all of which continue to attract capital even in a higher-rate environment.
Residential construction, by contrast, remains under pressure. Housing affordability is still a challenge, and activity has lagged year over year. That said, builder sentiment has begun to improve, and mortgage rates have stabilized near the 4% range, which may help restore buyer confidence as financing conditions become more favorable.
Housing: patience now, potential relief ahead
While housing starts and permits remain subdued, the outlook isn’t without hope. Most forecasts hinge on the 10-year Treasury yield falling below 4%, a move many analysts expect by Q2 2026. If that happens and the Fed follows through with additional rate cuts, more buyers could come off the sidelines, setting the stage for a modest rebound in residential activity later next year.
Nonresidential construction remains the growth engine
Nonresidential construction continues to do the heavy lifting, with several sectors driving momentum:
- Data centers are projected to grow nearly 22% annually over the next three years as AI, cloud computing, and digital infrastructure demands accelerate.
- Manufacturing construction, bolstered by reshoring and foreign direct investment, represents more than $220 billion in annual spending.
- Power generation is surging, with an estimated 44 additional terawatts of capacity needed over the next three years to support AI and advanced manufacturing.
- Healthcare construction continues to expand as demographic shifts and decentralized care models increase demand for new facilities.
Challenges to watch for
Labor costs continue to rise at an annual rate of more than 4%, creating challenges in regions where labor markets are already tight. Tariff uncertainty is also keeping material pieces elevated and adding to cost pressures for contractors and developers.
Looking ahead to 2026
Most forecasts point to a “Q2 pop” in 2026, with both residential and nonresidential construction gaining traction in the second half of the year. Migration trends continue to favor the Southeast and Southwest, where population growth, business-friendly environments, and infrastructure investment are fueling opportunity.
Next steps
Want the full picture? The complete CICPAC Economic Newsletter dives deeper into regional construction potential indices, sector-level forecasts, transportation trends, and in-depth economic insights from Dr. Chris Kuehl. Download your copy now!
With market momentum starting to build, now is the time to plan with clarity and confidence. Our construction pros are here to help you navigate industry shifts and position your business for sustainable growth. Let’s talk. Contact us today to schedule a free consultation and discuss how you can prepare for the opportunities ahead.
