ABC economist says three forces are splitting U.S. construction into winners and losers

The U.S. construction economy has "become more extreme," Anirban Basu, chief economist for the Associated Builders and Contractors, told attendees of a Construction Executive economic forecast webinar on 7 October 2026^[1]. Strong sectors are booming further while challenged ones face deeper pressure - and three economic forces are driving the split^[1].

Sector divergence: data centers versus everything else

The clearest expression of the divide is in spending data. Data center construction spending reached a record annualized rate of $75.2 billion in July 2026, up 57% year over year, according to a KPMG analysis of U.S. Census Bureau data. Total U.S. construction spending over the same period was 3.8% below its July 2025 pace.

Roughly one in six ABC members is currently under contract to work on a data center - the highest proportion on record, Basu noted^[1]. That concentration is heavily skewed toward larger firms: 42% of contractors with more than $100 million in annual revenue hold data center contracts, compared with just 7% of those below that threshold.

Meanwhile, the sectors outside that narrow band are contracting. Manufacturing construction fell 21.9% year over year through mid-2026, with Basu attributing much of the drop to CHIPS Act-incentivized megaprojects winding down. Hotel construction fell 10.7% over the same period. FMI's Q4 2026 outlook, published in October, forecasts total U.S. construction spending at $2.167 trillion for the year - down 3.4% from 2025 - with only four of 19 tracked segments growing.

Materials costs with no relief in sight

Basu told the 7 October webinar that contractors should prepare for another year of elevated input costs^[1]. Materials prices rose roughly 8% to 9% over the past year, while labor costs climbed 4% to 6% annually^[1]. Tariffs have amplified the pressure in specific categories: nonferrous wire and cable prices jumped 91.4% and steel mill products rose 86% year over year, according to Basu's mid-year update.

The cost squeeze is feeding directly into bid behavior. Contractors in Jackson, Mississippi, told Basu they are now seeing 12 to 16 competing bids on jobs that previously drew two to four^[1]. About 32% of webinar attendees surveyed in October expect their profit margins to decline over the next 12 months, up from 26% in July^[1].

Interest rates: the Fed's surprise move

The third force arrived just before the webinar. The Federal Reserve raised its benchmark rate in September 2026 - its first increase since July 2023 - adding roughly 70 basis points to borrowing costs over two months, Basu noted. Banks have responded by tightening construction lending standards, according to the Fed's Senior Loan Officer Opinion Survey. The rate increase is particularly damaging for residential construction: single-family housing starts between January and August 2026 ran 4.9% below the same period in 2025, and multifamily starts dropped 21.7% in August alone.

• Growing segments: data centers (+57% annualized), power infrastructure (+4.9%)
• Stable or declining: commercial (mixed), hotel (-10.7%), manufacturing (-21.9%)
• Hardest hit: residential - all three segments now declining, per FMI's Q4 forecast

Basu said he expects data center activity to continue supporting the broader industry into 2027, but warned that the September rate hike and persistent materials inflation could erode margins further before any relief arrives. Whether the Fed reverses course - and whether the Strait of Hormuz situation eases pressure on oil-linked inputs - will determine how wide the gap between construction's winners and losers grows in the months ahead^[1].