Contractors brace for 2026, water and sewer work holds steady

(UI) — Construction contractors are entering 2026 with more cautious expectations, citing economic uncertainty, tariffs and workforce pressures, even as water, sewer, power and data center projects continue to show relative strength, according to a new industry survey released by the Associated General Contractors of America and Sage.

The 2026 Construction Hiring and Business Outlook found contractors’ overall sentiment has weakened compared with last year, with respondents increasingly concerned about recession risks, rising material costs and policy uncertainty.

“While there are pockets of optimism in select private-sector markets, contractors’ overall sentiment has dampened notably compared to last year,” said Jeffrey Shoaf, the association’s chief executive officer. “One reason for their lowered expectations is that contractors are increasingly worried about the broader economy, the possibility of a recession and the outlook for materials costs.”

Among market segments, data centers posted the strongest outlook, with a net reading of 57%, followed by power projects at 34%. Contractors also reported moderate optimism for water and sewer work, which recorded a net reading of 16%, alongside healthcare and manufacturing construction.

By contrast, expectations for transportation-related construction declined sharply. The net reading for airport and rail projects fell to 11%, while bridge and highway construction dropped to 10%, down 14 percentage points from last year.

Contractors also reported widespread impacts from tariffs and immigration enforcement. About 70% of firms said tariffs affected their business in 2025, with many raising bid prices or adjusting contract terms. Roughly one-third of respondents reported being affected by immigration enforcement actions in the past six months, including workers leaving jobsites or subcontractors losing staff.

Project delays were also common. Nearly 63% of firms said owners postponed or canceled projects, most often due to funding uncertainty, financing costs, or rising labor and material prices.

Despite the cautious outlook, most firms still expect to add workers in 2026, with 63% planning to increase headcount. However, more than 80% said they continue to struggle to fill both craft and salaried positions.

Officials with Sage said contractors are increasingly turning to technology and artificial intelligence to manage productivity and workforce challenges.

“AI is becoming an increasingly important tool for construction firms facing tighter labor markets and more complex projects,” said Julie Adams, senior vice president of construction and real-estate solutions at Sage. “Firms are using technology to improve efficiency, manage risk, and maintain productivity in a more uncertain environment.”

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