The Economic Landscape and Construction Industry Insights

At our recent Construction Symposium spring webinar, Chief Economist Ken Simonson of AGC of America presented a comprehensive analysis of the construction industry's current state and future outlook. This educational session, part of a series that began after COVID to provide continuing education for industry professionals, offered valuable insights for contractors and construction-related businesses.

About AGC of America 

The Associated General Contractors of America (AGC) operates through a network of 88 chapters nationwide, representing over 28,000 firms including general contractors, specialty-trade contractors, and industry suppliers. These members work in every construction sector except single-family home building, though Simonson monitors that sector too due to its broader industry impact. 

Employment Trends: "Still Growing But Slowing" 

Simonson presented data showing construction employment increased in 31 states from February 2024 to February 2025. Virginia saw a modest 0.1% increase, while West Virginia's employment remained unchanged. Seventeen states experienced declines. 

The pandemic initially caused dramatic job losses - over 1.1 million people (15%) nationally, with West Virginia hit harder at almost 20% and Virginia experiencing a more modest 5% drop. Recovery has been uneven, with Virginia returning to pre-pandemic levels by mid-2021, while West Virginia and the nation took until the end of 2021. 

National construction employment has risen steadily since then, though the pace is slowing. Virginia's growth matched the national rate until February 2023 but has flattened since, while West Virginia has shown considerable volatility. 

Labor Market Dynamics 

The Job Openings and Labor Turnover Survey (JOLTS) showed February 2025 hiring at 4.3% of the total workforce, down from previous years and near a 25-year low for that month. Job openings dropped even more sharply, reaching the lowest February rate since 2018. 

Despite this hiring slowdown, layoffs and discharges were at a record low of 1.7%. Simonson interpreted this as evidence that firms, while not actively expanding, are determined to retain their workforce in anticipation of future needs. 

Wage Trends 

Simonson highlighted the growing "wage premium" - the difference between construction wages and broader private sector compensation. This premium has been rising, especially in heavy and civil engineering firms, where it increased from 19% to almost 25%. Non-residential building construction firms saw a more modest increase from just under 27% to around 27.5%. 

Year-over-year average hourly earnings for all construction employees had been rising at about 5% for several years, compared to the broader private sector, which has fallen to less than 4%. Additionally, the Construction Labor Research Council reported that median union contracts in 2024 had a first-year increase of 4.7%, with 15% of contracts exceeding 6.5%. 

Materials Costs 

The Producer Price Index for construction inputs showed relative stability recently, with the latest 12-month change at just 0.2%. However, Simonson noted concerning recent trends, with January to February increases of 0.5% and December to January increases of 0.7% - the largest in a year. 

The five-year cumulative change shows a 39% increase for construction inputs, compared to 23% for the consumer price index, indicating significantly higher inflation for construction than for consumers. Certain materials like copper, steel, and diesel fuel have increased even more than the overall average. 

Simonson reported numerous "dear valued customer" letters warning of price increases of 6-30% for materials ranging from wallboard to steel. Hot rolled coil steel rose from $650-700 per ton at the beginning of the year to $950 recently. Copper futures increased from just under $4 a pound to over $5.20 before settling around $5 a pound - still a 25% increase that will affect wire, pipe, fixtures, and other copper applications. 

Construction Spending 

Census Bureau data showed year-over-year increases across all sectors: 2% for private residential, 2% for private non-residential, and 6% for public construction. While still positive, these growth rates are slower than the previous year, reinforcing the "still growing but slowing" narrative. 

Residential Construction 

• Single-family construction essentially flat 

• Multi-family construction down 12%, declining for 15 straight months 

• Improvements (additions and renovations) showed growth 

Simonson noted that while multifamily starts have plunged for almost two years, the rate of decline has slowed. He cautioned that all residential segments face threats from high borrowing costs, rising materials costs, and consumer uncertainty. 

Non-Residential Construction 

Manufacturing construction, the largest non-residential segment, has flattened after strong growth previously. Semiconductor fabrication projects like Intel's Ohio facility (now delayed from 2025 to 2030/2031 with costs up 40% to $28 billion) have either reached peak activity or been paused. 

Other significant sector insights included: 

• Power construction: Growing at a moderate 6% rate, with projected record additions in solar power and utility-scale battery storage 

• Highway and street construction: Minimal growth over the past year, but expected to accelerate as Infrastructure Investment and Jobs Act funding converts to contracts 

• Education construction: Positive for both K-12 (4%) and higher education (8%), though higher education faces challenges including reduced federal funding and enrollment concerns 

• Office construction: Growth driven entirely by data centers (up 39%), while traditional office construction shows double-digit declines 

• Healthcare construction: Mixed picture with hospital construction up moderately, medical buildings down sharply, and special care facilities showing strong growth 

Policy Challenges 

Simonson expressed significant concern about the impact of tariffs on construction. He detailed numerous tariffs already implemented or pending, including 10% increases on Chinese goods, 25% steel and aluminum tariffs, and potential lumber tariffs on Canadian softwood possibly reaching 80%. 

Many manufacturers depend on imported materials and could face retaliatory actions from foreign countries, potentially leading to construction cutbacks across the supply chain - affecting agriculture, food processing, warehousing, trucking, and port activity. 

Beyond tariffs, immigration policies present another challenge. Construction trades employ a much higher percentage of foreign-born workers (34% nationally) than the overall economy (18%). In Virginia, 38% of construction workers are foreign-born, compared to just 4% in West Virginia. 

The percentage varies significantly by craft, with as many as 61% of plasterers, stucco masons, and drywall installers being foreign-born. Simonson shared an example of a Northern Virginia general contractor whose wallboard installers left a job site after hearing about an ICE raid nearby, illustrating how even rumors can disrupt projects. 

Short-Term Outlook 

Simonson predicted continued economic growth but warned that the risk of at least one negative quarter or possibly a recession has increased dramatically due to tariffs and immigration actions. He anticipates: 

• Labor costs increasing 4-5% 

• Material costs rising 1-3% minimum, potentially much higher with tariffs 

• Single-family construction improving gradually 

• Multi-family, warehouse, and office construction continuing to decline 

• Data centers remaining the strongest growth category 

• Power construction and some infrastructure categories continuing to grow 

• Manufacturing construction potentially showing slower or negative growth 

He concluded by noting that population growth, which reached 1% last year (highest since 2001), was driven 84% by immigration. As immigration policies change, more states may experience population declines, further impacting construction demand. 

Simonson's data-driven analysis provided valuable insights for contractors navigating this complex economic landscape, highlighting both challenges and opportunities in the coming year.