Will construction thrive or dive in ‘25?

Contractors began 2025 with cautious optimism but also a heightened degree of uncertainty about the year ahead. Construction and demolition (C&D) recyclers are likely to experience a similar mix of attitudes.

For the most part, the construction industry fared reasonably well in 2024. Nonresidential construction employment increased 3.3 percent, seasonally adjusted, from November 2023 to November 2024, more than double the 1.4 percent growth rate for total nonfarm payroll employment. (Seasonal adjustment is a statistical method for removing normal variation from regularly occurring events such as holiday or weather patterns so that underlying trends can be identified across different months.)

Even residential construction employment continued to grow faster than the overall workforce—at 1.6 percent—despite a slump in multifamily construction and nearly stagnant single-family homebuilding.

The employment gains were widespread. Over that span, 41 states and the District of Columbia added construction employees while only nine states shed workers.

Nevertheless, contractors appear to have grown more cautious as the year wore on. The number of job openings in construction at the end of October—249,000, seasonally adjusted—was the lowest for any month in four years.

Construction spending data provide another signal that construction could be slowing. The U.S. Census Bureau reported Dec. 2, 2024, that spending put in place in the first 10 months of that year increased 7.2 percent compared with January-October 2023. But that was less robust than earlier in the year, as spending in October was only 5 percent higher than a year earlier.

The election appears to have injected new uncertainty into the outlook for construction. Contractors can look forward to fewer new federal regulations and lower taxes under a Trump administration and Republican Congress than if the Democrats had retained control. But an actual rollback of regulations and extension or expansion of tax relief is likely to take time and be difficult to achieve.

Meanwhile, construction faces two major policy threats: tariffs and mass deportation.

Tariffs almost surely will drive up the price of construction materials that either contain imported components or are produced by U.S. firms that compete with imports. That will be a negative for contractors, especially if they already have committed to delivering a project at a fixed price. But it could provide a modest boost to demand for recycled materials in preference to imports.

Imposing a tariff would cause a one-time increase in some prices. That isn’t necessarily enough to trigger an ongoing rise in the inflation rate. But it could lead the Federal Reserve to delay any further reduction in its short-term “fed funds” interest rate target. That would be costly for developers who typically borrow from lenders at rates that are guided by the fed funds rate.

The greater danger from tariffs is the response they might trigger from U.S. trading partners. If those countries impose retaliatory tariffs or other restrictions on U.S. exports, then producers, transportation firms and others in the export supply chain and their workers will be harmed. Orders for construction projects and materials, among many other economic activities, will be curbed.

Deportation of foreign-born workers would hit construction harder than most sectors. An analysis of Census Bureau data by Riordan Frost of the Harvard Joint Center for Housing Studies found that 34 percent of construction craft workers in 2023 were immigrants—nearly double the 18 percent immigrant share of the nation’s overall labor force.

The foreign-born share was over 50 percent for four occupations: plasterers and stucco masons, drywall installers, ceiling tile installers and tapers, roofers, painters and paperhangers. The most numerous construction trades workers are laborers, 43 percent of whom are foreign-born.

Any exodus, whether voluntary or forced, of such workers would be disruptive to projects everywhere, but the initial impacts would vary greatly by state. Half or more of craft workers were foreign-born in the District of Columbia and four states—California, Maryland, New Jersey and Texas. At the other end of the spectrum, fewer than 5 percent of construction trades workers in Maine, Montana, South Dakota, Vermont and West Virginia were immigrants.

Nevertheless, even states with low shares of foreign-born construction workers would be affected as individuals relocate to states that have raised wages to make up for their lost workers. States where employers were raided in an effort to find undocumented workers also lost workers who might have been in the U.S. legally but still feared they or members of their households would be detained.

To glimpse the prospects for different types of projects in 2025, one useful perspective comes from the annual construction outlook survey the Associated General Contractors of America (AGC) released Jan. 8. The survey was conducted from shortly after election day in November until mid-December of last year and drew more than 1,100 responses from contractors in nearly every state.

Overall, AGC members have a largely positive view about prospects for projects available to bid on in 2025. They generally are more optimistic than they were a year ago, but their expectations as to the most favorable project types have shifted.

Respondents were asked to say whether they expect the dollar value available to bid on 17 different project categories would be higher, lower or about the same as in the year before. AGC presented the findings in the form of a net reading—the difference between the share of percentage of “higher” and “lower” answers.

The highest net reading, 42 percent, is for data centers. This is also the category with the largest increase in optimism from a year ago, when the net reading was 20 percent.

Contractors also are very bullish about the prospects for water and sewer projects, with a net reading of 35 percent, and for power projects, with a net reading of 32 percent. The readings for both of these project types are more positive than in the 2024 outlook survey.

Three largely public categories, in addition to water and sewer work, have strongly favorable outlooks in 2025. The net reading for transportation structures, such as airport and rail projects, is 29 percent. Expectations for bridge and highway work are a net 24 percent positive, though this reading slipped from 30 percent in 2024. The reading for federal contracts for agencies such as the General Services Administration, Department of Veterans Affairs, U.S. Army Corps of Engineers and the Naval Facilities and Engineering Command is 22 percent. However, that net declined from 29 percent a year ago.

One other public category—public buildings—drew a moderately positive net reading: 14 percent. That rating was similar to the 2024 net of 15 percent.

Among private-sector construction categories, in addition to data centers and power projects, contractors are bullish about nonhospital health care facilities, such as clinics, testing facilities and medical labs, with a net of 27 percent. That net is slightly higher than the 24 percent net reading for hospital construction. Survey respondents are largely positive about manufacturing plant construction, with a net reading of 25 percent, 10 percentage points higher than in 2024.

On balance, contractors are optimistic, as well, about the education sector. The net reading is 13 percent for kindergarten-to-12th-grade schools and 12 percent for higher education construction. However, these readings are 5 and 3 percentage points less positive, respectively, than a year ago.

Five other segments have readings that range from moderately positive to negative, yet all reflect more optimism than in 2024. For instance, the reading for warehouse construction increased by 4 percentage points, from 10 percent to 14 percent, while the reading for multi-family residential rose 8 points to 12 percent.

Contractors have boosted their expectations even more for the three categories that had negative net readings in the 2024 survey, now holding a slightly positive net reading. Lodging jumped to 7 percent, which is 10 points higher than the -3 percent reading a year ago. The net reading for private office construction jumped 21 points, from -24 percent to -3 percent. And the outlook for retail projects improved by 10 points, from -15 percent to -5 percent.

The average net reading across all 17 categories increased by more than 4 percentage points. Readings are higher than a year ago for nine segments and less optimistic for four project types. In four additional categories, little changed.

In short, the C&D recycling industry can look forward to wide-ranging growth in construction projects in 2025. Contractors in most sectors can expect to thrive. But the market could take a dive should major tariff and labor force disruptions arise.

Ken Simonson is chief economist for the Associated General Contractors of America (AGC), an Arlington, Virginia-based trade association for the construction industry. He can be reached at ken.simonson@agc.org.