Construction site reflecting the challenges faced by the industry amid economic uncertainty.
The U.S. construction industry is experiencing a notable slowdown due to economic uncertainty. Data indicates a decrease in construction activity affecting both consumers and producers. Although non-residential construction has seen some growth, overall project starts declined significantly. High inflation, tariffs, and labor shortages pose additional challenges. Looking forward, fluctuating material prices and increased tariffs threaten further cost increases, impacting both residential and non-residential construction. The industry must navigate these hurdles while seeking opportunities through federal funding and technological innovations.
The U.S. construction industry is experiencing a notable slowdown, significantly impacted by ongoing economic uncertainty in the first half of 2025. Recent reports indicate that construction activity has significantly slowed down, with numerous challenges affecting both consumers and producers alike.
According to data from the Dodge Construction Network, project planning has continued, but timelines are stretching longer, reflecting the broader economic concerns. The overall economy is characterized by high inflation, which is weakening demand and putting downward pressure on prices across the board. Tariff-driven cost increases further complicate the situation, making it difficult for both construction firms and consumers to manage expenses.
Year-to-date, non-residential construction starts have decreased by 10% during the first four months of 2025. The commercial and manufacturing sectors are at the forefront of this decline, with projections suggesting an ongoing softening due to economic uncertainty. Notably, retail construction starts fell by 5%, while the hotel sector experienced a significant drop of 19%, and warehouse projects were down 9%.
Despite these declines, there are sectors showing growth. The health care, parking garage, and office building sectors gained traction, particularly due to the rise of data centers. Office buildings have realized the highest growth, with starts up by 19% year-to-date. In April alone, several significant non-residential projects launched, such as:
On the residential side, there has been a 5% decrease in construction starts through April 2025, with single-family housing starts down by 6% and multifamily starts down by 4%. Key issues driving this trend include housing affordability and a lack of entry-level home supply. Major multifamily initiatives started in April include:
In contrast, nonbuilding construction starts rose by 8% this year, bolstered by funding from federal infrastructure laws. Significant projects initiated in April include:
Looking ahead, potential impacts from fluctuating material prices remain a concern for ongoing projects. Though spot prices have fallen from their recent highs, trade barriers and the prospect of increased tariffs may cause prices to rise again in the latter half of the year. Predictions suggest that the U.S. Commerce Department could impose tariffs between 10% and 25% on lumber imports.
S&P Global Market Intelligence forecasts a 13.9% increase in construction costs in 2025, along with an additional 6.7% rise in 2026. While plywood prices are expected to see a modest increase of 1.5% in 2025, steel prices are projected to remain flat. Notably, construction costs remain an alarming 40% higher than pre-pandemic levels from February 2020.
Furthermore, ongoing labor shortages threaten to impede construction momentum, with many contractors bracing for shrinking profit margins in the months that follow. Despite these hurdles, the U.S. construction sector displays relative resilience compared to other global markets, with project starts up by 6% through eight months of 2025.
As costs and economic uncertainties linger, the influence of federal funding and technological innovations promises to play a vital role in maintaining momentum in the construction industry, particularly for U.S. contractors who have been at the forefront of incorporating new technologies.
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