The 2025 Construction Industry Outlook by the Associated General Contractors of America (AGC) and Sage provides an extensive and nuanced analysis of the construction sector’s upcoming year. According to their 2025 Construction Hiring and Business Outlook Survey, involving more than 1,100 AGC member firms conducted from November 6 to December 13, contractors are displaying robust optimism about construction demand in nearly every public-sector segment and selected private-sector segments, even more so than in 2024. This optimism, however, is concurrently tempered by persistent concerns over labor shortages and material prices.
Optimistic Demand Projections
The survey reveals a broad sense of optimism about the future of construction demand, particularly in public-sector projects. This optimism is bolstered by the concrete results of the 2021 Infrastructure Investment and Jobs Act, as indicated by increased federal investments in infrastructure. Notably, the percentage of contractors involved in federally funded infrastructure projects has doubled in the last year, from 9 percent to 18 percent, with additional segments yet to begin work or awaiting project awards.
High-demand sectors include data centers, water and sewer, and power projects, whereas private office and retail segments are expected to decline. This shift in demand highlights the evolving landscape of the construction industry, where public infrastructure projects are taking precedence over traditional private-sector developments. The investment in these essential public projects is setting the stage for a transformative year in the construction sector, bringing forth new opportunities and increased momentum that many contractors are preparing to leverage.
Contractors believe that regulatory relief will further stimulate demand. This expectation is tied to the belief that easing regulations will facilitate project execution and encourage more significant investments from both public and private sectors. The anticipation of a more favorable regulatory environment is a key factor driving the optimistic outlook among contractors. The potential for regulatory relief is seen as a catalyst for unlocking new opportunities and accelerating project timelines. Contractors are hopeful that streamlined regulations will reduce bureaucratic hurdles, making it easier to initiate and complete projects efficiently.
Persistent Labor Challenges
Despite increased demand projections, contractors face significant labor-related challenges. These include rising labor costs, an insufficient supply of workers, and concerns about labor quality. These challenges are critical enough that firms are implementing various strategies to mitigate them, including increasing base pay rates, offering incentives or bonuses, and improving employee benefits. The labor shortage is a persistent issue that continues to impact the construction industry. Contractors are exploring innovative solutions to attract and retain skilled workers, such as investing in training programs and partnering with educational institutions to develop a pipeline of qualified talent.
Even though supply chain conditions have improved, material costs remain a significant concern for many contractors. Contractors are closely monitoring the political landscape and its potential impact on material costs. The uncertainty surrounding tariffs and trade policies adds an additional layer of complexity to project planning and budgeting, making it essential for firms to stay agile and adaptable. This ongoing issue necessitates a multifaceted approach to address both the immediate and long-term needs of the industry, ensuring that contractors can sustain their operations and meet project demands effectively.
Influence of Political Climate
Political developments, particularly the recent election outcomes and the anticipated policies of the incoming Trump administration, influence contractors’ outlook. This includes potential new regulations on immigration and trade that could further complicate labor and material dynamics in the industry. The construction industry is highly sensitive to changes in government policies, and contractors are keenly aware of the potential implications of new regulations. The industry’s response to these developments will be crucial in determining its ability to navigate the challenges and capitalize on opportunities in 2025.
To address labor shortages and improve operational efficiency, contractors are increasingly investing in technology. Artificial intelligence (AI) is at the forefront of these investments, with significant interest also in document management software, accounting software, and project management software. These technological advancements are seen as vital for improving workforce efficiency and handling complex projects with greater agility. The adoption of technology is transforming the construction industry, enabling firms to streamline processes, enhance productivity, and deliver projects more effectively. Contractors are leveraging AI and other digital tools to gain a competitive edge and meet the evolving demands of the market.
Strategic Requests to the Government
The 2025 Construction Industry Outlook, released by the Associated General Contractors of America (AGC) and Sage, offers a comprehensive and detailed analysis of the construction sector for the upcoming year. Their 2025 Construction Hiring and Business Outlook Survey, which included more than 1,100 AGC member firms and was conducted from November 6 to December 13, reveals strong optimism among contractors about the demand for construction in nearly all public-sector segments and select private-sector segments. This bullish outlook is even more favorable than the sentiments expressed in 2024. However, this positive outlook is clouded by ongoing issues such as labor shortages and increased material prices, which continue to be a significant concern for the industry. The survey highlights the dual nature of the industry’s future, characterized by both great potential and notable challenges, particularly in sourcing skilled labor and managing the costs of essential construction materials.