Tariffs, labour shortages and funding fears cloud contractors’ 2026 outlook

A major construction site at the Illinois State Capitol Complex in the US. Image: Adobe Stock

The report – Dampened Expectations: The 2026 Construction Hiring and Business Outlook – found contractors are increasingly concerned about the broader economy, while also reporting disruption from tariffs, immigration enforcement and ongoing difficulty finding qualified workers.

“While there are pockets of optimism in select private-sector markets, contractors’ overall sentiment has dampened notably compared to last year,” said Jeffrey Shoaf, AGC’s chief executive officer.

“One reason for their lowered expectations is that contractors are increasingly worried about the broader economy, the possibility of a recession and the outlook for materials costs.”

AGC said the survey measures expectations using a “net reading” – the % of respondents who expect the available dollar value of projects to expand minus the % who expect it to shrink. Data centres recorded the strongest reading, at 57%, with 65% of firms expecting growth in that market and 8% expecting it to contract.

Contractors also remained positive about power work, which recorded a net reading of 34%. More modest optimism was reported for healthcare (non-hospital facilities at 24%, hospitals at 20%), water and sewer (16%) and manufacturing (15%).

By contrast, expectations weakened across several major segments. The net reading for transportation structures (including airports and rail) fell to 11% from 29% a year earlier, while bridge and highway work dropped 14 percentage points to 10%. Contractors’ outlook also softened – though remained slightly positive – for warehouses, federal work, multifamily housing and public buildings.

Alongside demand concerns, firms reported cost and workforce pressures. About 70% said they have been affected by tariffs this year with 40% saying they responded by raising bid prices, while 20% added price-sharing adjustments or other contract terms. Over a third (35%) said they passed most or all tariff-related costs to owners, while 11% said they absorbed most or all tariff costs.

The survey also found 33% of firms were affected by immigration enforcement actions in the past six months, with 24% reporting subcontractors lost workers.

Project uncertainty remains high: 63% of respondents said an owner postponed or cancelled a project in the past six months, citing funding uncertainty (37%), unavailable or expensive financing (34%), and rising material or labour costs (23%).

Despite the cautious outlook, 63% of firms still expect to add headcount in 2026, versus 15% anticipating a decrease – but 82% said they struggle to fill hourly craft roles and 80% reported difficulty filling salaried positions.