EXECUTIVE SUMMARY

Fed relief offset by construction sector weakness

Macro conditions are softening. GDP growth slowed sharply in Q4; the February benchmark revision revealed far fewer jobs than initially reported, and the Fed has paused after 75 basis points of cuts with limited further easing expected.

Construction spending remained weak throughout the second half, running 1.0% below year-ago levels by December 2026. Private construction has been most impacted, declining nearly 3.0% year-over-year, while public construction posted full-year gains of 3.6%. Manufacturing construction accelerated its retreat, falling more than 11% year-on-year.

Tariff-exposed materials, such as steel and copper, posted notable year-on-year gains. Section 232 duties of 50% on steel, aluminum and copper remain in force and a new 10% Section 122 surcharge layers additional cost across all imports.

Our national bid-price escalation estimates close 2025 at 4.0% and moves to 4.25% for 2026, anchored by persistent labor tightness and sustained duties on key metals.

Looking ahead, public investment should help cushion the sector as infrastructure spending flows from federal programs. Private construction faces headwinds from elevated financing costs and manufacturing project slowdowns. Labor constraints persist despite softening demand, and the tariff landscape remains fluid.