Forecasts
Economists See Positive Momentum and Possible Hurdles for Construction in 2025
Some issues impacting contractors, such as material prices and lead times, seem to be calming, while issues like labor availability remain a concern heading into 2025.
Photo by Michael Maddox/U.S. Army Corps of Engineers Louisville District
Some of the market conditions that have troubled contractors over the past few years seem to be resolving, but new problems could arise under a changing economic situation, construction and economic experts said during Construction software provider ConstructConnect’s biannual construction economy outlook webcast Nov. 14.
After the inflation rate skyrocketed following the start of COVID-19, inflation concerns have largely subsided, said Michael Guckes, chief economist with ConstructConnect. He noted that the U.S. inflation rate fell to 1.6% in September, per the Bureau of Labor Statistics.
Construction input prices have mostly calmed, with the Producer Price Index for nonresidential inputs dropping 1% from September 2023 to September 2024, said Ken Simonson, chief economist at the Associated General Contractors of America—though prices for some materials such as copper and brass mill shapes remain volatile. Lead times for most items, other than certain electrical equipment, have shortened. And lessened federal regulations anticipated under the incoming Trump administration could help some projects start sooner, he added.
Even architects, who have faced soft demand over the past two years, are eyeing a potential turnaround in 2025, said Kermit Baker, chief economist at the American Institute of Architects. A recent survey by the group found more than two-thirds of its member firms were somewhat confident or very confident that they will see improved business conditions in the next 12-18 months.
“Call me an optimist, I think we’re beginning to turn the corner,” Baker said. “I think we look to be near bottom, and should be seeing things pick up again.”
Tariffs and Prices
At the same time, tariffs that President-elect Donald Trump has said he will institute have the potential to cause “a huge spike in prices” and could likely trigger a trade war, Simonson said.
“We’d see a lot of projects canceled or at least scaled back,” he said.
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Certain types of projects, such as renewable energy developments and plants related to electric vehicles, would also find less support under the Trump administration, especially if officials move to pull back any funding from the Infrastructure Investment and Jobs Act, Inflation Reduction Act or Chips and Science Act.
Each of these bills passed by Congress set billions of dollars toward the construction of various types of projects aligned with Biden administration goals.
The availability of skilled labor also remains an issue for contractors, Simonson said, pointing to recent AGC survey results. Roles for surveyors, estimating personnel and pipefitters/welders remain some of the hardest to fill.
The most common reason contractors are having trouble filling available positions is that the available candidates are not qualified. And half of contractors said new hires failed to show up or quit within days or weeks of starting. The new administration’s immigration policy will also be extremely important, but Trump’s comments on the issue “have not been encouraging” for contractors, Simonson said.
“Construction has always relied more heavily than other sectors on foreign-born workers,” he said. “And if the border really gets shut down more, and certainly if deportations are part of the mix, that’s going to hit construction even harder than other sectors.”
