Construction outlook weakens amid tariffs and labor pressures

With costs remaining elevated and uneven across regions, construction spending in the U.S. slowed in the second half of 2025, according to a report from professional services company Turner & Townsend.

The pullback occurred as macroeconomic conditions softened and bid price inflation increased an estimated 4.25%. “Federally backed infrastructure, data centers, and trade‑driven supply chain shifts are keeping bid price escalation above historic norms,” the report says.

Construction spending declined 1% below year-ago levels in the second half of 2025. Private construction was most impacted, declining nearly 3.0% year-over-year, while public construction posted full-year gains of 3.6%.

Manufacturing experienced an accelerated retreat, falling more than 11% year-over-year. This year, public investment should help cushion the sector as infrastructure spending flows from federal programs, the report says. Private construction faces headwinds from elevated financing costs and manufacturing project slowdowns.

Other notable factors impacting the construction market this year include persistent labor constraints despite softening demand and a fluid tariff landscape.

Sector highlights

Total construction spending declined about -0.36% in nominal terms year-over-year in Q4 2025, and after adjusting for cost increases, real output contracted further.

Private construction drove the spending decline throughout the second half of 2025, with declining from US$1.70 trillion seasonally adjusted annual rate in Q3 2024 to US$1.65 trillion in Q4 2025, a 3.0% year-over-year drop in Q3 and 1.5% drop in Q4.

While public construction provided some counterweight, expanding 4.0% year-on-year in Q3 2025 and 3.5% in Q4, reaching US$521.7 billion SAAR in December.

Manufacturing remains the largest non-residential subcategory, but its retreat accelerated through 2025. Spending fell to $202.4bn SAAR in Q4 2025, down 11.4% year-over-year, the steepest annual decline of any major category.

Healthcare edged down 1.4% to $68.7bn.

Office increased 2.4% to $107.6bn, a modest but notable stabilization given persistent remote work headwinds.

Amusement and recreation rose 6.1% to $44.4bn, reflecting sustained investment in sports venues and entertainment districts.

Transportation construction rose 5.3% year-over-year to $68.9bn, while power construction grew 5.8% to US$162.4bn, sustained by data center growth and grid modernization programs.

Cost outlook

Looking ahead, public investment should help cushion the sector as infrastructure spending flows from federal programs. Private construction faces headwinds from elevated financing costs and manufacturing project slowdowns. Labor constraints persist despite softening demand, and the tariff landscape remains fluid.

Turner & Townsend expects bid price escalation to remain elevated but gradually ease:

• 2026: 4.25% as tariffs and labor pressures persist
• 2027: 4.0% as lending conditions stabilize and demand softens
• 2028: 3.75% as infrastructure spending peaks and private construction remains subdued