Construction contractors have “dampened” expectations for 2026, aside from surging demand for data centers and power facilities, amid broader worries about the direction of the economy, according to Dampened Expectations: The 2026 Construction Hiring and Business Outlook, which the Associated General Contractors of America and Sage released. In addition to lower expectations, contractors report they have been impacted by tariffs, enhanced immigration enforcement and challenges finding qualified workers.
The report measures contractors’ expectations for different market segments via a net reading — the percentage of respondents who expect the available dollar value of projects to expand compared to the percentage who expect it to shrink. The highest net reading, 57%, is for data centers. Specifically, 65% of respondents expect the market for data center construction to increase, compared to just 8% who expect it to shrink.
Contractors remain bullish about power projects as well, which recorded a net reading of 34%. Contractors are moderately optimistic about hospitals, other healthcare facilities, water and sewer, and manufacturing.
Within healthcare, non-hospital facilities, including clinics, testing facilities and medical labs, recorded a net reading of 24%, followed by hospital construction with a net reading of 20%. Water and sewer had a net reading of 16% and manufacturing posted a net reading of 15%.
Many contractors also report being impacted by new tariffs and enhanced immigration enforcement. Roughly 70% of firms report being affected by tariffs this year. Forty percent report responding to actual or proposed tariffs by raising bid prices and 20% of firms added price-sharing adjustments or other terms to contracts. While 35% report passing most or all tariff-related costs on to project owners, 11% say they absorbed most or all tariff costs.
One-third of firms (33%) report having been affected by immigration enforcement actions in the past six months. Six percent report a jobsite or offsite was visited by immigration agents. Eleven percent report workers left or failed to appear because of actual or rumored immigration actions, and 24% report subcontractors lost workers.
In addition, over three-fifths (63%) of respondents report an owner postponed or canceled a project in the past six months. When asked why, 37% cite a lack of funding or uncertainty about a funding source, whether federal, state or private. More than one in three firms (34%) say project financing was unavailable or too expensive. Just under a quarter (23%) of firms say increasing material or labor costs played a role.
Shoaf noted that respondents were asked to identify their biggest concerns for 2026. An economic slowdown or recession emerged as their most-often mentioned concern, cited by 62% of firms. The next three most cited concerns were workforce-related: 57% of respondents cited insufficient supply of workers or subcontractors, 56% selected rising direct labor costs (pay, benefits, employer taxes), and 53% identified worker quality.
Despite broader concerns, most firms anticipate adding workers in 2026 to meet the needs of current and planned projects. More than three-fifths (63%) of firms expect to add to their headcount, compared to only 15% who expect a decrease. However, more than four out of five firms report having a hard time filling hourly craft positions (82%) or salaried openings (80%) — a higher proportion than at any point in the past three years.
Officials with Sage reported construction firms are increasingly investing in technology to address productivity and labor challenges. Sixty-one percent of respondents say their firms are using artificial intelligence or plan to increase investment in it, up from 44%last year. AI is most commonly used for office and administrative functions estimating, and preconstruction activities.
“AI is becoming an increasingly important tool for construction firms facing tighter labor markets and more complex projects,” said Julie Adams, senior vice president of construction and real-estate solutions at Sage. “Firms are using technology to improve efficiency, manage risk and maintain productivity in a more uncertain environment.”
