What We Learned in June: Construction Shows Small Signs of Momentum, Risks Remain
The construction industry has experienced an uptick in hiring and growing backlog in recent months, yet input price escalation and reemerging signs of labor shortages could put pressure on contractor margins in the months ahead.
Nonresidential Construction Spending Growth Concentrated in Public Segment
Nonresidential construction spending expanded 0.1% in April, but growth was entirely concentrated on the public side of the segment, which grew 0.4% for the month. Private nonresidential spending contracted in April and is now down 2.1% from a year ago. While most of the private sector weakness is the result of CHIPS Act-incentivized megaprojects winding down, few categories other than data centers have exhibited significant momentum during the early months of 2026.
Nonresidential Hiring Picks Up
Construction industry employment grew by 17,000 jobs in May, 15,700 of which were in the nonresidential segment. Nonresidential construction employment has grown by more than 100,000 positions over the past year, a 2.1% increase, growing more than two times faster than the broader economy over that span. An utter lack of layoffs in recent months suggests that contractors are increasingly struggling to fill open positions, providing yet another sign of growing industrywide demand for labor.
Backlog Surges, Contractors Remain Confident
ABC’s Construction Backlog Indicator increased to 9.1 months in May, a three-year high. All four regions measured in the survey have higher backlog than one year ago, though growth is fastest in the South and Middle States. While contractor confidence fell slightly in May, expectations remain broadly upbeat about sales, profit margins and hiring over the next six months.
Materials Price Escalation Accelerates
Construction input prices surged 2.6% in May and are up nearly 10% over the past year. While oil prices made a significant contribution to the rise in overall input prices, tariff-affected inputs like iron, steel and copper continue to experience brisk price increases. While lower oil prices should ease input price pressures over the next several months, there will continue to be faster-than-ideal escalation as costs are passed through various parts of the supply chain.
Looking Ahead
Borrowing costs are set to remain elevated through 2026, and that, coupled with rising materials prices, could weigh on profitability and limit construction activity in many nonresidential categories over the remainder of the year. Despite those headwinds, the data center boom will continue for the foreseeable future.
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