As the first quarter comes to a close, the construction industry continues to face challenges related to tariffs, labor shortages and other ongoing issues that will mitigate growth in the coming months.
“Caution will continue to define the year ahead,” says Sarah Martin, associate director of forecasting at Dodge Construction Network. “Inflation pressures and worsening labor shortages are expected to persist, contributing to subdued growth in 2026.”
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While total starts rose 5% year-over-year in January, industry growth was confined to the non-building sector. “Construction activity began the year on a soft note, with multiple sectors experiencing notable year-to-date declines,” she says, noting that “activity is expected to stabilize over the course of 2026, albeit at relatively flat levels.”
Steve Stouthamer, executive vice president of project planning at Skanska USA Building, shared that outlook. “The U.S. construction market is navigating a period of cautious transition, with modest overall growth expected amid high borrowing costs, materials inflation and persistent labor shortages,” he says. “While high-growth sectors such as data centers, semiconductors and life science projects continue to drive activity, traditional residential and commercial markets remain softer, highlighting the uneven momentum shaping the year ahead.”
Residential starts declined 17% since January 2025, according to Dodge data. The bulk of the decline is attributed to single-family starts that fell 22%. “Despite incremental improvement in mortgage rates and home prices, overall housing affordability remains historically low,” Martin notes, pointing to recession fears and a “steadily weakening labor market” as catalysts for the decline.
Multifamily starts fell 9% year-over-year, but Dodge data predicts growth in the sector going forward. “As low- and middle-income buyers continue to be priced out of the single-family market, demand on the rental side will be sustained—or buyers will opt for more affordable townhouses or condominiums,” says Martin.
Major multifamily structures that began work in January were the $335-million 38 Gramercy Park East Condominiums in New York, the $265-million Lakeview Residence in West Palm Beach, Fla., and the $200-million Homestead Gateway Mixed Residential Tower in Jersey City, N.J.
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In the non-residential sector, yearly starts are down 10%. Heathcare and education construction were among the weakest markets, declining 39% and 18%, respectively.
Commercial work, continuing to be bolstered by data centers, as well as by hotels and parking garages, has been strong—up 14% since January 2025. The $1.2-billion New York Presbyterian Cancer Center in New York, $1-billion Amkor Semiconductor Advanced Packaging (Phase 1) in Peoria, Ariz., and $750-million QTS CLT1 Data Center (Phase 1) in York, S.C., were the largest non-residential projects to break ground in January.
The non-building sector was by far the strongest, with starts up 46% year-over-year. Electric power and utilities starts soared, at a rate of 300%. Public works starts, however, were more “subdued,” says Martin. Dodge reports that highway and bridge work declined 25% between January 2025 and January 2026, while environmental public works dropped 20%.
In this market, the biggest projects to start in January were the $12-billion Port Arthur LNG-Liquefaction Phase 2 (Trains 3 & 4) in Port Arthur, Texas, the $6-billion Homer City Energy Campus 4.4 GW in Homer City, Pa., and the $1.5-billion Tehuacana Creek 1 Solar and Battery Storage project in Navarro, Texas,
On the materials side, many construction inputs have been affected by ongoing tariffs. In the S&P Market Intelligence first quarter forecast, which was published prior to the current conflict in Iran, rebar prices are set to rise 7.2% this year.
Fabricated structural sheet and fabricated structural metal products are also predicted to increase, at a rate of 6.9% and 5.1%, respectively.
Stouthamer expects that prices will continue to rise amid current events worldwide. “Global uncertainty is beginning to influence construction inputs,” he explains. “Planning for contingencies—whether they are related to tariffs, supply chain disruptions, labor challenges or cost escalation—is increasingly critical to keeping projects on schedule and within budget.”
Related links:
Economics: Non-building Work Leads Industry Starts Through First Quarter
Confidence Index: Data Centers Propping Up a Fragile Construction Market
Labor: Executive Compensation Increases Continued to Drop Last Year Following 2023 High
Equipment: Equipment Pricing Maintains Stability, but Rising Fuel Costs May Impact Fleet Refreshes
Methodology: Tariffs Contributed to Price Hikes for Many Materials in 2025
