The construction industry headed toward 2025 with continuing but subdued gains in activity and a heightened degree of uncertainty.
Overall, the industry did well in 2024. Nonresidential construction employment increased by 3.5 to 4 percent annually throughout the year, even as total
nonfarm payroll employment slowed to a growth rate less than half as fast. Even residential construction employment continued to grow despite a slump in
multifamily construction and nearly stagnant single-family homebuilding.
The employment gains were widespread. From October 2023 to October 2024, 41 states added construction employees, while only eight states and the District of Columbia shed workers. (The headcount remained unchanged in Vermont.)
Nevertheless, contractors appeared to be more cautious as the year progressed. The number of job openings in construction at the end of October—249,000, seasonally adjusted—was the lowest in four years.
Spending data also shows that construction may be slowing. The Census Bureau reported in December that spending in the first 10 months of 2024 increased 7.2 percent compared to January to October 2023. But that was less robust than earlier in the year and spending in October was only 5 percent higher than a year earlier.
Meanwhile, two major policy threats to construction exist: tariffs and deportation of foreign-born workers.
While tariffs are almost sure to drive up the cost of construction materials that either contain imported components or are produced by U.S. firms that compete with imports, some manufacturers will benefit from removing foreign competition, leading them to expand capacity. However, they may
merely match the price increases instead.
The greater danger from tariffs is the response they might trigger from U.S. trading partners. Their workers will be harmed if they impose retaliatory tariffs or
other restrictions on U.S. exports, producers, transportation firms, and others in the export supply chain. Construction orders,
among many other economic activities, will be curbed.
Deportation of foreign-born workers would hit construction harder than most sectors. The National Association of Home Builders analyzed Census Bureau data and found that 31 percent of construction craft workers in 2022 were immigrants.
Voluntary or forced exodus of such workers would disrupt projects everywhere, but the initial impacts would vary greatly by state. In California
and Texas, 40 percent of workers were foreign-born. At the other end of the spectrum, only 1 percent of the construction labor force in Maine, Vermont, and North Dakota were immigrants.
To predict the prospects for different types of construction projects in 2025, we must start with current demand drivers. The broad spending categories are nearly balanced: Total construction spending increased 5 percent from October 2023 to October 2024, as did public construction. Private residential spending climbed 6 percent, and nonresidential spending rose 3 percent.
However, within these segments, there are major differences. The standout in 2024 has been data center construction, which
jumped 37 percent year-over-year in October and tripled over the past three years, with demand poised to continue growing.
The largest private nonresidential category is manufacturing construction, with huge semiconductor fabrication plants going up in several states and
factories to produce electric vehicles (EVs), batteries, and other components. While the semiconductor plants that have started are likely to continue, others may be delayed or canceled. And some of the planned EV plants have already fallen by the wayside as demand for the vehicles has fallen far short
of expectations. Nevertheless, other factories may break ground in 2025 as manufacturers seek to avoid tariffs or conflict areas and to get closer to end markets.
The second-largest private market is power construction. It has experienced strong growth in solar fields and utility scale battery storage. Both appear likely
to continue increasing in 2025, along with transmission lines, but they are vulnerable to a possibly hostile Trump administration.
The worst-performing private segments have been office, warehouse, and retail construction. The office market shows no signs of a turnaround, apart from
a smattering of conversions to hotels and apartments. High vacancy rates for supersized warehouses mean this part of the distribution chain will remain dormant in 2025. Still, smaller warehouses inside metro areas, temperature-controlled facilities, and warehouses near new factories will provide some opportunities.
Public construction has been supported largely by state and local government spending. In 2025, more money from the 2021 Infrastructure Investment and Jobs Act should finally turn into spending. Expect upturns in highway, rail, and possibly broadband communication construction, along with continuing strong growth in airport, water, and wastewater projects.
Double-digit declines in multifamily starts have dragged down residential construction, while homebuilding has improved only
slightly from the depressed levels of 2023.
In 2025, apartment construction will likely remain depressed, but a pickup could begin late in the year if the current overhang of nearly completed projects is absorbed quickly enough. Homebuilding should accelerate, but it depends on whether mortgage rates fall below the recent 6 to 7 percent range and whether tariffs drive up the price of lumber, appliances, and other imported homebuilding items.
In short, contractors will have a variety of opportunities in 2025. However, multiple categories of uncertainty make it even harder than usual to be confident in the future outlook.
Ken Simonson has been chief economist for the Associated General Contractors of America (AGC), the leading trade
association for the construction industry, since 2001.
