BOSTON— The U.S. construction sector continues to weather a complex landscape of tariff-driven cost volatility, labor constraints, and slowing growth in spending, according to the newly released Q2 2025 Construction Market Update from Eldridge Acre Partners (EAP).
While challenges persist, the industry is showing signs of stability and resilience, particularly in construction starts and backlog.
Spending and Growth Outlook Softens
Total U.S. construction spending is projected to grow by just 1% in 2025, a sharp slowdown from the 7% growth seen in 2024. This tepid forecast reflects broader economic uncertainty and a market recalibrating after years of aggressive expansion.
Despite the slowdown, construction starts jumped 16% in June—a promising signal for future momentum. Nonresidential starts surged by 39% month-over-month, helping offset a 1% decline in residential activity. Year-to-date, total starts are up 1% over 2024 levels.
Backlog Remains Steady
The Construction Backlog Indicator (CBI) rose slightly, up 0.3 months year over year, indicating a healthy pipeline of future work. Larger and smaller contractors saw gains, while mid-sized firms (with revenues between $30M–$100M) reported decreased backlog, highlighting uneven trends across company sizes.
Regionally, the Southern U.S. leads with an average backlog of 9.4 months, followed closely by the Northeast at 9.2 months.
Architectural Billings Remain in Decline
The Architectural Billings Index (ABI) remains below 50, landing at 46.8 in June, indicating a continued decline in design services demand—though at a slower pace than earlier in the year. The South was the only region to show growth, with an ABI score of 50.6, suggesting future construction activity could be stronger in that region.
Tariffs Driving Volatility—But Impact Muted
New tariffs introduced throughout Q2 created initial spikes in the cost of materials like aluminum, steel, and lumber, but those price swings have largely stabilized. Notably:
Steel: +1.1% MoM, +10.9% YoY
Aluminum: +0.3% MoM, +19.2% YoY
Lumber: +1.4% MoM, -18.0% YoY
Cement: +0.5% MoM, +15.3% YoY
Despite concerns, tariff-driven cost impacts to guaranteed maximum price (GMP) contracts remain minimal, estimated at 2%–5%, according to EAP. Competitive pricing among hungry contractors and early procurement strategies are helping mitigate cost increases.
Construction Costs Edge Upward
The ENR Building Cost Index (BCI) rose by 1.4% quarter-over-quarter, driven by modest increases in equipment and material costs. However, both skilled and common labor costs were largely flat, a potential indicator of a slightly loosening labor market. The Construction Material Cost Index increased 2.2% QoQ, though year-over-year growth has stabilized.
Labor Market Tight, but Cooling Slightly
Construction job openings declined slightly to 245,000 in May, while the unemployment rate in the sector fell to a tight 3.4%. While labor availability remains constrained, the rate of job openings and hiring is stabilizing.
Tariff Policy: A Moving Target
The report also outlines a flurry of trade developments influencing material costs:
A universal 10% import tariff went into effect in April, with elevated rates (up to 50%) for countries like China, India, and the EU.
The U.S. reached preliminary trade deals with the UK and Japan and announced a major tariff-capping agreement with the EU.
Negotiations continue with India, Saudi Arabia, and Thailand.
Despite these shifts, the Global Supply Chain Pressure Index fell to 0.00 in June, signaling a neutral pressure environment.
EAP’s Q2 2025 report paints a picture of a construction industry adapting to external headwinds with measured optimism. While demand indicators like ABI remain muted and spending slows, the growth in starts, steady backlog, and limited actualized tariff impact suggest that the sector is holding steady in a volatile environment.
