Q3 2025 

Construction Market Update

This quarterly spotlight provides an in-depth analysis of current trends, capital spend and industry outlook. 


Three Takeaways

1.

The One Big Beautiful Bill Act (OBBBA) contains several provisions that will affect the construction industry.

2.

The average effective tariff rate for U.S. imports is now 17.4%.

3.

AI will only deliver real value in construction with a robust, real-time data strategy in the field.

J. Brett Williams

President
Construction

in

From OBBBA to AI: The Real Power Tool Is Data

We in the construction business love our acronyms, and there’s a new one we should probably get used to: OBBBA.

This refers to the One Big Beautiful Bill Act signed by President Trump in July. The new law will have several implications for our industry, and we’ve highlighted several of those for you in this quarter’s update. We also have the latest on U.S. tariffs, providing insights into when to expect those to affect prices for you (and us) moving forward.

When you throw all this together, you have an industry in the throes of change. In this update, we spotlight another shift with the potential to dramatically disrupt our industry: AI. As the ongoing labor challenge continues in construction, AI has emerged as a solution, making jobsites more efficient, increasing productivity and helping alleviate the labor crunch, or so the thinking goes. But what needs to happen to make this a reality? Jeff Danley tells us why technology is the easy part when it comes to capturing the benefits of AI. Much more challenging is having a solid data strategy in place. It’s a compelling piece, and I encourage you to give it a read.

There’s a ton of change, or the potential of change, happening out there. As always, we’re hustling to keep up, as I’m sure you are, too. Don’t hesitate to get in touch with us if you need help sorting through the chaos.

Live Safer,
Brett 

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Labor and Tariff Highlights

$156B

Mandatory Defense Spending From the OBBBA

40%

Decrease in Construction Job Openings Since January

50%

Aluminum, Steel Tariffs to Impact Construction Materials

OBBBA 

The One Big Beautiful Bill Act (OBBBA), signed in July 2025, contains several provisions that will affect the construction industry:

  • 100% bonus depreciation made permanent. This allows businesses to fully deduct capital expenses in the first year, rather than spreading the expense over multiple tax years, which reduces taxable income and increases cash flow (used by the construction industry when purchasing machinery).
  • New 100% bonus depreciation for manufacturing facilities. Construction of manufacturing facilities now qualifies for bonus depreciation. Construction must start before Jan. 1, 2029, and leased facilities do not qualify.
  • Restores R&D expensing. Businesses can once again expense domestic research and development costs.
  • Permitting reform. Several modifications to the National Environmental Policy Act are designed to speed up the permitting process. A separate provision allows for expedited permitting for certain natural gas projects.
  • $156 billion in mandatory defense spending. Includes funding for the Golden Dome missile defense system and other defense programs, as well as $7.5 billion for critical minerals.
  • Phaseout of solar and wind energy tax credits. To qualify for tax credits, wind and solar energy projects must start construction within 12 months or be placed in service by the end of 2027. Projects that start after 2025 will be subject to provisions limiting the percentages of materials from certain nations, such as China.

There will be a push to start projects over the next year. In the longer term, tax credit changes and tariffs could make solar and wind projects more difficult and costly, but given the demand for new energy, solar and wind projects will continue to be built. Credits for battery storage were not changed.  

Tariffs & Prices  

With reciprocal tariffs in force, the average effective tariff rate for U.S. imports is now 17.4%, up from 2.4% at the start of the year and higher than any time since the 1930s. That rate does not include new guidelines that apply the 50% steel and aluminum rate to hundreds of types of finished products using those metals. The 50% rate applies to the steel and aluminum content of the good, with reciprocal and any other tariffs applying to the rest of the good.

So far, consumer prices have not seen a large jump, but prices for producers and the construction industry have gone up. The Producer Price Index (PPI) was up 0.9% in July. While monthly PPI figures are volatile, this is the highest single-month change since 2022 and could signal that a rise in consumer prices is coming.

For construction, the PPI for inputs to nonresidential construction was up 0.5% in July and has increased 2% since January, largely driven by copper, steel and aluminum prices. Spot prices for steel and copper have come down recently, but reciprocal tariffs apply to a broader set of construction imports.CDB_WHQ_KCM_Q3ConstructionMarketUpdate_9436884639_figure1

Click to Enlarge Image
USMCA = United States-Mexico-Canada Agreement
*As of Sept. 1, 2025. Commodity tariffs are not stacked with country reciprocal tariffs, though preexisting tariffs may be added to the above rates.

Industry Outlook 

Private nonresidential construction spending fell 1.6% over the first half of 2025. Construction spending in most sectors has been level (power, healthcare, education, water) or down (commercial, manufacturing, office). Data centers have been the only source of strong growth, with moderate growth from highways and streets, sewer and waste, and chemical manufacturing.

Employment in nonresidential construction has been flat since March. Job openings in construction are down nearly 40% since January.

Industry surveys and projections have shown major swings this year in response to the changing policy landscape:

  • The Associated General Contractors Confidence Index has trended down since January but remains slightly higher than a year ago. The Backlog Index is trending up for Commercial & Industrial and for Infrastructure; heavy industrial has fallen more than 50% over the last year.
  • The FMI Nonresidential Construction Index improved to 49.8 in the Q3 2025 report (above 50 indicates expansion). Executives are feeling better about the economy and the industry but worrying more about the cost of materials.
  • After plummeting to a -12 net rating in the second quarter amid peak market volatility, sentiment in the engineering industry rebounded to a +12 net rating in the third quarter, according to the ACEC Engineering Business Sentiment Study.
  • ConstructConnect projects 4.9% growth in nonresidential construction in 2025, but a 6.7% decline in 2026, with a major falloff in manufacturing.



Click to Enlarge Image
Source: U.S. Bureau of Labor Statistics, Producer Price Indexes

Jeff Danley

Director of Innovation

in

Why Bad Data Is Blocking Progress in Construction 

With artificial intelligence, automation and connected technologies advancing rapidly, the pressure is on to modernize operations and keep pace with rising expectations. Many organizations are embracing AI in hopes of gaining an edge, whether by streamlining procurement or forecasting costs and schedules. But technology isn't the issue. That's the easy part. The real challenge is the data, or lack thereof, behind the tech.

For all the excitement around AI, what often goes unspoken is how fragile our systems can be without the right foundation. AI models are only as effective as the quality of the data they're built on, and in the construction industry that data can be disorganized, incomplete or siloed. When inconsistent, outdated or disconnected information is fed into AI systems, the results are not just underwhelming; they're misleading and potentially risky. Without the ability to turn quality data into actionable insight — the overall strategy — even the most advanced AI tools fall short.

A robust AI strategy begins with the right data strategy.

For years, data strategies have focused on static dashboards and spreadsheets. AI is forcing us to think differently. An enterprise data strategy that utilizes clean, complete data is the key to looking forward, allowing owners and project teams to be predictive instead of reactive. The right data helps optimize schedules, navigate tariffs, anticipate supply chain risks, improve safety and deploy field teams when needed. Inefficiencies of the old model are being exposed, and those who can't connect and act on data in real time risk falling further behind.

Data, however, often stays confined to the office. To truly leverage AI, the focus must shift to collecting more data in the field — because when information flow breaks down, efficiency breaks down with it. Strategic data readiness requires an all-hands-on-deck approach: aligning tools, standards and expectations across jobsites, teams, subcontractors and systems. Organizations that treat data as a strategic asset, not a byproduct, will be better positioned to lead, as well as to meet increasing expectations.

Here's how to begin:

Standardize the approach. Data standards — not software — are the foundation of any effective AI strategy. Define what types of data matter most and how they should be captured and structured consistently. The goal isn't to limit flexibility but to create clarity so that project data can be trusted, connected and compared across teams.

Break down silos. The most valuable insights come when data flows freely among the office, field, subcontractors, partners and even municipalities. AI tools need access to the full picture, not fragments. Creating an environment that encourages cross-functional collaboration and open data exchange amplifies the value of systems and decisions. Getting data into a common format that can be accessed and utilized by all will drive future business.

Build a culture that values data. Standards won't stick without the right mindset. Teams need to understand why data matters, how their inputs affect project outcomes, and why data is no longer just paperwork. This requires leadership support, training and ongoing communication. When people see data as a tool (that makes job functions easier) instead of a task, adoption follows naturally.

Once these fundamentals are in place, the door opens to a more forward-thinking vision.

Consider the perennial challenge of materials management. Traditionally, tracking critical components from the factory to the jobsite has relied on a fragile chain of emails, phone calls and, again, spreadsheets. When a crucial shipment is delayed or materials are misplaced on a sprawling site, the ripple effect is immediate: Crews are left waiting, schedules slip, and costs mount. The data is siloed, out of date, and difficult to act on.

Now imagine a dynamic supply chain where every critical component is tracked with GPS or RFID tags. This creates a transparent, real-time data flow from the supplier to the subcontractor, accessible to everyone who needs it. Instead of reacting to a missing delivery, project managers can proactively see a shipment that’s behind schedule and reroute another truck to keep crews productive. They can locate a specific pallet of materials on a 100-acre site in seconds instead of hours. The value isn't in the tags themselves, but in the reliable, shared data that allows teams to make smarter, faster decisions.

This is where concepts like digital fabric come into play, blanketing jobsites with smart connectivity and sensor networks to capture real-time data on materials, equipment, tools and personnel. Though connectivity remains a current pain point on jobsites, this concept creates opportunities to track everything from PPE to heavy equipment and from safety events to materials flow — driving more informed decisions about site layout, logistics and procurement.

In a future shaped by AI, the strength of a contractor's data strategy could be the difference between a job that moves forward and one that falls behind.

Supporting such a progressive vision encourages moving data stewardship from a backend function to a core part of field operations. Perhaps on-site data stewards — human or robotic — emerge, seeing that data is captured at the source, structured correctly, and made available for broader systems and analytics. This on-site data agent could offer fewer surprises, faster reactions, predictable performance and better long-term decisions, which, in turn, make projects safer, smarter and more resilient. That's the beauty of quality data.

This isn't abstract or far off. It's a practical, necessary step toward realizing the real-world benefits of AI and understanding what it takes to make it work for project teams. When selecting a contractor, that foundation and understanding matter: knowing how they're capturing data on the jobsite, what standards they follow, and how that data connects back to project goals. In a future shaped by AI, the strength of a contractor's data strategy could be the difference between a job that moves forward and one that falls behind.

A robust AI strategy begins with the right data strategy. Clean, well-structured, consistently captured data is what turns information into insight — and insight into action. Those who prioritize data strategy today will be tomorrow's AI leaders because they've built the foundation for it to thrive.

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