The Winding Road Ahead, with Rob McManamy

As we enter 2026 and prepare for our industry's biggest annual tradeshow, AHR Expo, coinciding this February with ASHRAE's Winter Conference in Las Vegas, there is palpable anxiety in the air on so many fronts... One prime example: As I record this, the U.S. Dept of Justice has announced possible criminal charges against the chairman of the Federal Reserve Board, Jerome Powell. Definitely a first in U.S. history.

But despite that jaw-dropping news and other head-scratching headlines, the U.S. economy still appears remarkably stable, and the overall outlook is rather positive, at least for now... In fact, on Monday, January 12th, a headline in the Wall Street Journal proclaimed, "Wall Street is Bullish on Economy"... 

More specific to our industry, economic analysts FMI Corp this month released preliminary results for its First Quarter 2026 Nonresidential Construction Index, or NRCI. Based on FMI's national December survey of contractors and designers...

The NRCI climbed sharply to a score of 54.5 in the first quarter 2026, up from 47.9 in the fourth quarter, as sentiment improved across every major component. Views on the overall U.S. economy and local economies where respondents operate moved into expansion territory this quarter.

Expectations for their own construction businesses saw the largest improvement, jumping to 67.1 from 56.7 in Q4, while sentiment toward construction activity in their local markets also strengthened. Backlog expectations also rose to 70.4 from 54.6, signaling stronger workload visibility heading into 2026. 

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But an apparent disparity has emerged in the outlooks of big firms v. small firms, according to Associated Builders and Contractors chief economist Anirban Basu. Although overall backlogs inched higher to end 2025, “Backlogs fell sharply for smaller contractors ” said Basu. “That decline was largely due to the fact that nonresidential construction momentum is confined to the data center segment, and those projects are far more beneficial for the largest contractors."

Indeed, the phenomenal growth of the outsized data center market continues to distort the overall forecasting picture for our industry, which does have several competing concerns...

On January 8th, Associated General Contractors and industry consultant SAGE released its own new survey, "Dampened Expectations: The 2026 Construction Hiring and Business Outlook." The results were based on November and December responses from 951 contractors in 49 states. Some 30% were union firms, while 60% are nonunion.

“While there are pockets of optimism in select private-sector markets, contractors’ overall sentiment has dampened notably compared to last year,” said Jeffrey Shoaf, AGC’s chief executive officer. “One reason for their lowered expectations is that contractors are increasingly worried about the broader economy, the possibility of a 
recession and the outlook for materials costs.” 

Shoaf noted that respondents were asked to identify their biggest concerns for 2026. An economic slowdown or recession emerged as their most-often mentioned concern, cited by 62 percent of firms. The next three most cited concerns were workforce-related: 57 percent of respondents cited insufficient supply of workers or subcontractors, 56 
percent selected rising direct labor costs (pay, benefits, employer taxes), and 53 percent identified worker quality. 

With all that in mind, consultant Sage reported that construction firms are increasingly investing in technology to address productivity and labor challenges. Sixty-one percent of respondents say their firms are using artificial intelligence or plan to increase 
investment in it, up from 44 percent last year. AI is most commonly used for office and administrative functions, estimating, and preconstruction activities. 

“AI is becoming an increasingly important tool for construction firms facing tighter labor markets and more complex projects,” said Julie Adams, senior vice president of construction and real-estate solutions at Sage. “Firms are using technology to improve efficiency, manage risk, and maintain productivity in a more uncertain environment.” 

Indeed, that uncertain environment appears to be with us for a good while longer this winter and beyond. For the moment, though, much data still suggests that we also have good reason to be optimistic about the year ahead, at least on the business front. But with news cycles as nuts as they are these days, it never hurts to have a viable Plan B at the ready for your firms... just in case.

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