Economic Update After a strong start to 2025, the construction industry entered the third quarter with momentum slowing and warning lights beginning to flash. Employment growth has slowed, backlogs have softened and project costs continue to edge higher even as spending levels flatten. While certain sectors — particularly data centers and infrastructure — remain bright spots, most contractors are shifting from expansion to caution, focusing on cost discipline, workforce stability and maintaining healthy pipelines as the year comes to a close. Employment and Labor Conditions Despite some pockets of resilience, labor metrics in the construction sector are showing signs of softness and structural stress. According to our folks at ABC National (ABC), industry employment increased by just 2,000 net jobs in July, representing only a 1.2% year-over-year increase. By August, the sector lost 7,000 jobs, marking the third consecutive monthly decline. On a year-over-year basis, employment growth in August was only 0.7% (58,000 jobs). Moreover, job openings in the field went down: As of the last day of August, there were only 188,000 job openings in construction nationally, down 115,000 from the previous month, the lowest in nearly a decade. Meanwhile, the quit rate has fallen to a nine-year low, suggesting reduced worker mobility and perhaps a more cautious labor market. From a strategic standpoint, this suggests two simultaneous pressures: labor demand is weakening (fewer jobs, fewer openings), and labor supply remains constrained (given very low unemployment in the sector and upward wage pressure). ABC economists had warned that the industry might need to attract roughly 439,000 net new workers in 2025 to meet anticipated demand — or else risk wage escalation and constrained growth. To summarize, labor markets remain tight from a supply perspective, but demand is under pressure, setting the stage for wage pressures even amid slower growth. Backlog and Spending Activity-pipeline indicators are sending mixed signals. ABC’s Construction Backlog Indicator (CBI) dropped from 8.8 months in July to 8.5 months in August. While that is still ahead of August 2024’s 8.2 month reading, the downward move signals weakening momentum. Notably, the backlog decline is concentrated in smaller firms, while larger firms still enjoy 13.5 months backlog and increasing pipelines. Turning to construction spending, nonresidential spending was about $1.241 trillion in June, though June registered a 0.1% monthly decline in that series per ABC. Taken together, backlog remains elevated (especially for large firms), but the trend is downward, and spending is slipping. For contractor executives, this means that while near-term pipeline may still hold, the risk of softening in the next 6-12 months is increasing. Cost Pressures and Materials Cost inflation remains a core concern. ABC reported construction input prices rose by 0.2% in August, with nonresidential input prices also up 0.2% on a monthly basis. But deeper commentary suggests that the risks lie with tariffs, raw-material categories and labor. More than 80% of By ABC ECONOMIC ANALYSTS 40
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