CONSTRUCTION MARKET OUTLOOK
What the One Big Beautiful Bill Act (BBB) means for construction
The BBB’s restored tax incentives are likely to reshape the construction sector in several different ways.
First, allowing a 100 percent write-off for new production facilities makes manufacturing and heavy industrial plants far more economical. This will support pipelines toward factories, refineries, chemical processors and similar assets breaking ground between January 2025 and December 2028.
Second, permanent R&D expensing and fully revived bonus depreciation compress payback periods on equipment, building upgrades and technology. This can free up cash and accelerate plant expansions even in a high-interest rate environment. Firms can also retroactively claim 2022-24 R&D deductions, unlocking liquidity that can immediately fund shovel-ready projects.
Third, eligibility is broad: any non-residential structure whose primary function is to manufacture, process or refine tangible goods qualifies, provided ancillary office or warehousing space remains incidental.
Finally, an analysis by the tax foundation suggests the legislation lifts long-run GDP roughly 1.2 percent and capital stock 0.7 percent. Construction, historically pro-cyclical, should see a boost to industry prospects, reinforcing backlog growth.
However, accelerated project pipelines could cause strain on a supply chain already under duress. Should investment be brought forwards and projects starts pick-up, skills shortages and material availability bottlenecks would likely increase – adding additional cost pressures to project delivery. That, in of itself, could temper some of the perceived BBB benefits.
The sector is finding balance
Baseline view
Barring new macro shocks, 2025 should be a holding year. Robust infrastructure and data center work will help balance softer housing and traditional commercial sectors, keeping employment steady and be supportive of spending.
Trade frictions persist, but fresh accords with the UK, Japan and Indonesia have tempered early-year uncertainty. Tariffs on steel, aluminum and copper will begin to increase project costs more drastically as pre-ordered inventories shrink, pre-existing commercial agreements expire and contractors run out of margin to absorb the additional costs.
Upside catalyst
Markets now expect the Fed to begin cutting rates in late 2025 as inflation eases. Even a modest pullback in mortgage rates should revive single-family demand and unlock delayed private projects, setting up a stronger 2026. Although it will take time for changes to filter through into activity gains.
Project backlogs are already improving. June’s total backlog rose 3.5 percent from May, fueled by a surge in data-center work, a trend that will continue. Regionally, backlogs are softening in the South and Midwest but strengthening in the Northwest and West, while the Northeast is nearing its post-pandemic peak set in 2023.
Doge Construction Networks momentum index and construction starts data also suggest that activity levels will be bolstered heading into 2026. Both increased by 20.8 and 16 percent in July and June of 2025, respectively. Future prospects therefore remain encouraging, and despite macro challenges, underlying sector fundamentals should support continued deal flow.
Source: Associated Builders & Contractors
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Figure 6:
Key construction market metrics - movement (%), index value or months where stated
Latest period
Previous period
ENR Confidence Index
47.0
Q1 2025
61.0
Q1 2025
CFMA Confidex Index
101.0
Q1 2025
113.0
Q1 2025
AIA/Deltek Architectural Billings Index
46.8
June 2025
47.2
May 2025
ABC Construction Backlog Indicator (months)
8.7
June 2025
8.4
May 2025
Dodge Momentum Index
280.4
July 2025
232.1
June 2025
DCN Non-residential Construction Starts (MoY %)
8.0
June 2025
2.0
May 2025
Source: Engineering New Record, Construction Financial Management Assosciation, American Institute of Architects, Associated Builders and Contractors, Dodge Construction Network
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