A new

Associated General Contractors of America

(AGC) report sheds light on how construction contractors feel about the year ahead.

In its report titled “

Dampened Expectations: The 2026 Construction Hiring and Business Outlook

,” AGC details how construction contractors have lower expectations for 2026 – aside from surging demand for data centers and power facilities. The association says contractors have broader worries about the economy’s direction.

In addition to lower expectations, AGC reports that contractors have been impacted by tariffs, enhanced immigration enforcement and challenges finding qualified workers.

“While there are pockets of optimism in select private-sector markets, contractors’ overall sentiment has dampened notably compared to last year,” says Jeffrey Shoaf, CEO of AGC. “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.”

Shoaf says AGC’s outlook measures contractors’ expectations for different market segments via a net reading – the percentage of respondents who expect the available dollar value of projects to expand compared with the percentage that expects it to shrink.

The highest net reading (57 percent) is for data centers. Specifically, 65 percent of respondents expect the market for data center construction to increase, compared with just 8 percent who expect it to shrink.

Shoaf

Contractors also remain bullish about power projects, which recorded a net reading of 34 percent.

Contractors are moderately optimistic about hospitals, other health care facilities, water and sewer, and manufacturing, according to AGC.

The association says the net reading for construction of transportation structures, such as airport and rail projects, plunged from 29 percent to 11 percent during the past year. The reading for bridge and highway construction dropped 14 percentage points to 10 percent.

Net readings also declined – yet remain modestly positive – for warehouse, federal work, multifamily residential projects and public building.

Other insights

In addition to lowered expectations, many contractors tell AGC they are being impacted by new tariffs and enhanced immigration enforcement.

Roughly 70 percent of firms report being affected by tariffs this year. Forty percent report responding to actual or proposed tariffs by raising bid prices, and 20 percent of firms added price-sharing adjustments or other terms to contracts.

While 35 percent report passing most or all tariff-related costs on to project owners, 11 percent say they absorbed most or all tariff costs.

Additionally, one in three firms tell AGC they’ve been affected by immigration enforcement actions in the past six months. Six percent report a jobsite or off-site location was visited by immigration agents. Eleven percent report workers left or failed to appear because of actual or rumored immigration actions, and 24 percent report subcontractors lost workers.

In addition, 63 percent of AGC’s respondents say an owner postponed or canceled a project in the past six months. When asked why, 37 percent cite a lack of funding or uncertainty about a funding source – whether federal, state or private. More than one in three firms (34 percent) say project financing was unavailable or too expensive, while 23 percent say increasing material or labor costs played a role.

AGC’s respondents were also asked to identify their biggest concerns for 2026. An economic slowdown or recession emerged as their most-often mentioned concern, cited by 62 percent of firms. The next three most-cited concerns were workforce related: 57 percent cited insufficient supply of workers or subcontractors, 56 percent selected rising direct labor costs, and 53 percent identified worker quality.

Despite their broader concerns, most firms anticipate adding workers in 2026 to meet the needs of current and planned projects.

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