U.S. Construction Industry Report: An inside look at how companies are adapting to the current market.

The U.S. construction industry is evolving, and so are the opportunities within it.

Injections of federal funding, coupled with pent-up demand from the pandemic shutdowns, created a surge in the industry link opens in a new window in 2022 and 2023. Even though costs were much higher, federal investments in infrastructure projects and domestic semiconductor manufacturing brought new projects into the pipeline. In addition, investors saw opportunities to address the nation’s housing shortage and meet other shifts in consumer demand.

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In 2024, we began to see signs of the market softening, a trend that continues in 2025. The AIA/Deltek Architecture Billings Index link opens in a new window, which provides a forward-looking picture of future projects, has been negative virtually every month since the post-pandemic boom. New project inquiries also decreased through the start of 2025.

Meanwhile, the Associated Builders and Contractors backlog indicator link opens in a new window, which reflects the work commercial and industrial contractors have coming in the months ahead, has remained relatively strong. The average monthly backlog dropped from 8.9 months in 2023 to 8.3 months in 2024 and has fluctuated around that number throughout the first half of 2025.

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Looking ahead, companies throughout the industry face a dynamic economic landscape. Inflation and supply chain costs continue to impact business. Industry realities make it challenging to manage cash flow. And demographic shifts have created a systemic labor shortage.

Fortunately, new technology and operational innovations are creating opportunities and opening doors for businesses that are nimble enough to adapt, and many remain focused on growth.

Cost pressures from interest rates, inflation and tariffs.

Going into 2025, there was widespread hope that interest rates and inflation — both of which had increased cost pressures for construction firms — would decline.

While the Federal Reserve cut interest rates by one percentage point across 2024, it held steady through the first half of 2025, citing increased uncertainty PDF opens in a new window about the country’s economic outlook. The interest rate environment continues to be a discussion point among contractors, as rates have a significant impact on their capital costs as well as the capital costs of their end users.

Overall, inflation did ease in the first half of 2025 link opens in a new window. It hit a four-year low of 2.3% in April and inched up to 2.4% in May as tariffs started to impact prices. Yet, this isn’t true across all product categories. Construction input prices rose at a 6% annualized rate through the first five months of 2025, according to an Associated Builders and Contractors analysis link opens in a new window of U.S. Bureau of Labor Statistics’ Producer Price Index data.

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Steel mill products, switchgear and similar equipment, iron, steel, fabricated structural metal products, copper wire and cable prices are among the highest increases.

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Large contractors have been through enough ebbs and flows of the commodity cycle that they’re likely able to ride out these price shifts. Their teams are monitoring prices and trends closely to have up-to-date data they can use to shape business strategy. Smaller firms, however, are likely to be hit harder by price increases and swings in expenses.

U.S. and global tariff policy was in flux throughout the first half of 2025 and seems likely to continue to have at least some variability that will impact construction firms of all sizes. It creates two challenges: higher levels of overall economic uncertainty and higher direct costs on materials. Nearing the middle of the year, nearly a quarter of ABC member link opens in a new window contractors reported project cancellations or delays and most had received notices of price increases on various materials due to tariffs. That same ABC member survey found that approximately 60% of contractors forecast sales to increase in the second half of the year.

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Companies continue to seek opportunities to shore up their supply chains.

While many of the supply chain disruptions brought about by the pandemic have eased, construction firms continue to have to remain focused on securing the materials they need to complete projects on time and within budget. A recent report in the industry publication Construction Dive link opens in a new window discussed how many firms that previously relied on global suppliers have added U.S. and other North American vendors to their network and place orders ahead of their needs. This shift not only reduces dependency on international shipping and exposure to potential tariffs, but it also allows firms to create a buffer against potential delays.

Companies that make this shift away from “just-in-time” to “just-in-case” supply chain management are better able to absorb periodic disruptions that continue to crop up. For instance, long lead times for such critical materials as electrical gear, HVAC systems and specialized mechanical equipment remain a challenge, according to the global construction and project development firm Skanska’s spring 2025 Construction Market Trends Report link opens in a new window.

By building more resilient supply chains, construction firms can better navigate uncertainties and maintain project momentum, giving them an edge in a competitive market.

Cash flow is king.

The cost pressures from interest rates, inflation, possible tariffs and supply chain challenges could squeeze profit margins in an industry already saddled with unpredictable cash flows from long project cycles, delayed payments and increased material costs.

According to one industry report, it takes construction companies more than three months PDF opens in a new window on average to collect payment on their invoices. That’s more than double the 45-day Days Sales Outstanding link opens in a new window (DSO) that construction cost accountants recommend for maintaining strong cash flow and good credit management. Slow payments don’t just strain cash flow, but also drive up project costs, with some contractors reporting that they increase their bids PDF opens in a new window by up to 10% to compensate for payment delays.

Construction companies that find ways to boost income, reduce overhead expenses and accelerate cash flow have an edge in today’s market. They find it easier to secure project financing, manage their balance sheet and mitigate other financial risks.

To cope with slow payments, it has become common for general contractors to establish payment terms with their subcontractors that state payment isn’t due until the end user has paid the general contractor. In practice, however, implementing these terms isn’t always practical. Quality subcontractors are in high demand, and general contractors often must be sure they have the cash flow to pay quickly in order to maintain those relationships.

However, technology advancements are improving how companies manage cash flow.

Payment and treasury management tools now integrate a company’s enterprise resource planning (ERP) system with its bank’s payment system. By pulling transaction, payment, payroll and other financial data into an integrated system, construction businesses can get a more holistic view of their financials and identify opportunities to improve cash flow. The finance team will be able to see the cash position at-a-glance, helping them better maintain liquidity, manage debt and sustain creditworthiness.

Construction companies that implement these higher-tech financial systems also gain other advantages that their peers lack. Those embracing integrated systems can streamline bill payment and reconciliation, saving staff time. In some cases, they’re able to add a line of revenue by replacing paper checks with electronic payments associated with an accounts payable card that comes with a profit-sharing incentive from the card company.

Fraud and cybersecurity risks are on the rise.

Construction companies, like all businesses, face a growing onslaught of attacks from bad actors.

Associated General Contractors of America link opens in a new window points to several key cybersecurity threats facing the industry, including ransomware attacks, fraudulent wire transfers, downtime or business interruption, breach of intellectual property and breach of bid data. Companies in the field are also at risk for more traditional types of financial fraud, such as check fraud. In just a six-month period, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) received mail theft-related check fraud reports link opens in a new window across all industries totaling more than $688 million in suspicious activity.

To fight back, companies need to embrace a multi-pronged risk management approach. This includes strengthening internal systems security, educating employees on recognizing and mitigating fraud and ensuring appropriate insurance coverage to minimize potential losses. Construction companies have access to a number of fraud mitigation tools and strategies today, including services from their financial institution to verify payments to ensure funds only go to intended recipients, digital accounts payable and receivable functions with robust security around user permissions, and requirements for dual approval on transactions.

As fraud tactics evolve, staying vigilant and investing in robust security practices is crucial for every business.

Systemic labor shortages continue.

Job openings in the construction industry peaked in December 2023 at 449,000. Despite softening since then, construction companies continue to struggle to find skilled labor, increasing operational costs.

The labor shortage is likely to continue. According to the National Center for Construction Education and Research PDF opens in a new window, the average age of craft workers was 42.9 years in 2020, already above the average general age of citizens in the U.S. of 38.5. If the current rate continues, the average age will be greater than 46 by 2030.

The labor shortage extends beyond the trades to include professional staff. Understaffed accounting departments have less time to spend checking invoices, tracking approvals and managing other accounting functions, particularly in growing companies.

While technology can help address the labor shortage on the professional staff side of the business, many construction companies are actively engaged in workforce development initiatives designed to expand the talent pipeline in the building trades. These efforts are likely to continue for the foreseeable future.

The National Institute for Construction Excellence link opens in a new window (NICE) is one such program. Established in Kansas City in 1998, NICE offers a number of programs and events designed to engage young people in potential construction careers. It includes curriculum that starts in middle schools and extends to introducing high school seniors to skilled trades apprenticeships.

Immigration policy shifts may further tighten the labor market.

In July, Congress passed legislation making a historic investment in immigration enforcement. The approximately $170 billion in funding will support ongoing efforts to detain and deport record numbers of people without legal status. In addition, several policies are tightening paths to legal immigration, including changes to marriage-based green card procedures and the elimination of some asylum claims.

The construction industry is closely watching the impact of these changes. In June, the CEO of the Hispanic Construction Council said that his group estimates 700,000 to 1 million link opens in a new window construction workers don’t have legal status. To put that in perspective, estimates from the Center for American Progress PDF opens in a new window are that 23% of construction laborers didn’t have legal status in 2021.

Digital technologies create opportunities for growth.

Just as new technologies are improving construction companies’ financial operations, the rise of artificial intelligence, three-dimensional modeling, data analytics and automation are creating opportunities in other areas of the business.

One example of this is the widespread adoption of GPS technology. Heavy road construction companies, for example, have transitioned from manual processes such as using strings to ensure accurate alignment, to leveraging GPS for precise paving operations. This shift enhances efficiency and significantly improves quality control.

Automation is also making its mark in vehicle operations. For example, in the ready-mix trucking industry, companies are increasingly replacing manual transmission vehicles with automatic ones. This change alleviates health issues for drivers, such as injuries to knees and shoulders caused by repetitive gear shifting.

The integration of digital scanning technology is revolutionizing pre-construction and remodeling workflows. Companies can now digitally scan entire spaces, such as a building floor, and incorporate the data into Building Information Modeling (BIM) systems. This eliminates the need for manual drawings, streamlining the design process.

These technologies are also helping companies attract and retain talent in the tight labor market. By reducing the physical strain of certain jobs, automating repetitive tasks and modernizing workflows, firms can appeal to a broader range of workers, including younger, tech-savvy individuals who would rather work for a forward-thinking company. Technology can also reduce training time, enabling new employees to contribute more quickly. By continuing to invest in and adapt to these technologies, construction firms position themselves not only to meet current demands but also to remain resilient amid changing market dynamics.

Embracing the future.

The U.S. construction industry and the pace of new project development is recalibrating after years of post-pandemic expansion. At the same time, the forces reshaping the industry are prompting companies to adapt and innovate.

Firms that can manage cash flow effectively, utilize emerging digital tools and invest in talent development will be best positioned during this period of change. Although challenges remain, the continued demand for infrastructure, housing and modernization offers reasons for optimism.

The remainder of 2025 will be a test of operational resilience and a time for strategic investment toward long-term growth opportunities.