Issue 56 – Second Quarter 2026
The construction industry continues to lack momentum, and cost pressures have returned in the form of rising materials, borrowing, and labor costs. Even so, the industry’s employment base continues to expand as even limited sources of momentum, like data center construction, fuel hiring.
The Good
Data Center Construction
“Good” is probably too tame a term for the data center segment, which is up 23% over the past year and an incredible 636% over the past five years. Demand for data center construction services will remain elevated, and the only threat to the segment’s outlook is the rising prevalence of data center moratoria. Even that won’t limit the segment, but rather will divert activity to more amenable areas.
The Strictly Okay
Healthcare Construction
Construction spending in the healthcare segment has slipped over the past year, falling a modest 3.5%. That is largely due to a decrease in outpatient facility construction; hospital construction is roughly unchanged year over year, while public sector healthcare spending has actually increased.
The Bad
Commercial Construction
Commercial construction activity continues to decline as the formerly booming warehouse segment—down 36% from the early 2023 all-time high—continues to contract, albeit at a slower pace than it did in 2024 and 2025. Even beyond warehouses, however, most commercial construction subsegments have contracted recently, and a rebound is unlikely until borrowing costs decline.
The Ugly
Interest Rates & Materials Prices
The resumption of the conflict in Iran in early July caused ten-year Treasury yields to rebound, and that has put renewed upward pressure on already-high borrowing costs. Broader economic dynamics including a solid labor market and too-fast inflation suggest that the Federal Reserve’s next move could be to raise interest rates.
Construction material prices fell in June, the most recent month for which data is available, but that’s entirely due to the temporary decline in oil and fuel prices. With the conflict in Iran resuming in early July and oil back above $80/barrel, materials price escalation will almost certainly resume in the coming months.
