Though the Federal Reserve cut interest rates three times in 2025, the construction industry in the United States generally faced strong headwinds that year stemming from everything from tariffs and rising building material costs to labor shortages and tough new federal immigration enforcement policies.
Even housing starts last August decreased 1.0% year-over-year from 1,470 to 1,304 units and were down 7.6% year-to-date, according to the Alabama Center for Real Estate.
But the leaders of the Associated Builders and Contractors Inc. Alabama Chapter and of the Alabama Associated General Contractors say their members are remaining cautiously optimistic that the industry will nonetheless thrive in 2026.
“We all, at the end of the day, expect modest growth in 2026,” says Billy Norrell, CEO of Alabama Associated General Contractors.
The Alabama AGC represents 1,000 members, including general contractors, sub- and specialty contractors, supply affiliates that supply the materials for projects, as well as accountants, attorneys, insurance professionals and others.
“We’ve also got some big infrastructure jobs underway like the West Alabama Highway and the proposed I-10 Mobile River Bridge down over the causeway,” says Norrell. “We’re building a new state house in Montgomery, and we’re building a couple of new prisons in the state.”
Just recently, Eli Lilly and Company announced its plans to spend more than $6 billion to build a pharmaceutical manufacturing plant in Huntsville, and last May, the Alabama School of Healthcare Sciences broke ground to construct a new specialized, residential high school in Demopolis. Birmingham-based Brasfield & Gorrie is the general contractor on the project that is estimated to cost $62 million.
“There are plenty of workload anchors out there that are great for the industry,” Norrell says.
But Jay Reed, president of the Associated Builders and Contractors Inc., Alabama Chapter, says the larger companies — contractors handling $20 million to $60 million projects and a lot of bid work — will likely see more opportunities and more business development efforts in 2026 than their smaller counterparts.
Reed points to a recent construction backlog indicator report from the national ABC, an economic indicator that shows what commercial and industrial construction firms will work on in the coming months.
“It says the smaller the contractor, the less work they are currently performing or have as backlog for the next six months,” Reed says.
Reed says smaller investors and developers are holding their coins closer to the vest than the larger contractors that are doing long-term build outs for projects like data centers and hospitals and other health care facilities.
“However, the smaller developers are more apt to [put] a few projects on hold next year,” Reed said in December.
Meanwhile, despite the lengthy federal government shutdown last year, many highway and bridge projects continued being funded due to monies from the Highway Trust Fund, says a report by the International Bridge, Tunnel and Turnpike Association.
Norrell says, “When the slow down and the shutdown occurred, that could have had some impact on federal funding for highway projects and certain other government projects that are funded through the legislative process. But fortunately, the highway jobs continued, and those were not impacted directly by that.”
Another bright spot was the Federal Reserve interest rate cuts in 2025, Reed says.
“The mortgage rate drop has the industry a little bit more excited toward the end of the year, so we’re starting to hear more optimism from my small to medium contractors,” Reed says.
Tariffs
A focus on tariffs loomed large throughout much of 2025, including on construction materials. In fact, just last year the United States raised the tariff rates on aluminum and steel from 25% to 50%.
A report by the firm Cushman and Wakefield predicted that tariff rates as of September 30, 2025, would increase the cost of construction materials by 9% relative to average materials costs in 2024, and that total project costs would rise about 4.6%.
Besides raising the cost of construction materials, experts in the industry say tariffs can result in difficulties with pricing, scheduling projects, project delays and even cancelled contracts by project owners.
The AGC reports that many of its members stored up materials ahead of time to protect against unexpected tariffs and escalating costs.
Ed Hauser is senior vice president for Birmingham-based Brasfield & Gorrie, one of the largest privately-held construction companies in the United States, and chairman of Associated Builders and Contractors’ executive committee. He says early material procurement is a strategy his firm adopted.
“Whether it was impacts due to tariffs or impacts due to Covid, we learned to get ahead of material procurement, whether it’s ordering material or equipment early in design planning. We’ve just had to adapt, and I feel like, as an industry, we’ve figured out how to do that and how to get ahead,” Hauser says.
But, he says, “As a whole, tariffs have not had, at least on what we’ve seen, a major impact on project costs.”
In a November press release, the national ABC’s chief economist Anirban Basu said, “Unfortunately, it’s unclear how higher tariffs on key materials like iron and steel and aluminum and copper will affect prices over the next several months, and it’s noteworthy that commodities related to those materials have exhibited significant year-over-year price increases.”
Fewer Regulations
Another major change is the softening of regulations, which is impacting the construction industry.
Last July, for example, President Donald Trump signed an executive order to accelerate the federal permitting of data center infrastructure.
“The regulatory decisions being made by the current federal administration has certainly been a breath of fresh air as they look to expedite projects, streamline permitting, cut back on the EPA overreach that we were seeing by the prior administration,” Reed says.
With the streamlined permitting process, large commercial development projects can be shovel-ready quicker, Reed says.
Labor Shortages and Immigration
One area of concern in the construction industry is the shortage of skilled workers.
A 2025 Workforce Survey Analysis by the AGC and the National Center for Construction Education and Research found that 88% of firms that directly employ craft workers reported having openings for those workers and 83% with job openings for craft workers said the positions were either hard or harder to fill than the previous year. In addition, 84% of firms reported that finding salaried workers was hard or harder to find than the prior year.
One contributor to the labor shortage is the Trump administration’s new mass deportation policy.
The construction industry has for years relied heavily on immigrant workers for many skilled tasks, but under President Trump’s new policy, agents from the U.S. Immigration and Customs Enforcement or ICE, under the U.S. Department of Homeland Security, have been rounding up and arresting noncitizens and anyone who lacks the legal status to live and work in the country.
The Workforce Survey Analysis reported that 28% of respondents said they had been impacted directly or indirectly by the ICE raids. Five percent of those polled reported having a jobsite or offsite visited by immigration agents while 20% said their subcontractors lost workers. Another 10% say workers had either left or stopped showing up for work due to either actual or rumored immigration actions.
“I can’t say that, to date, we’ve had any specific delays due to not having labor,” says Hauser, “but I’ve certainly seen it become a real challenge to some of our subcontractor partners.”
Reed says his members in Alabama have been impacted by the new immigration policies, as well.
“We heard loud and clear over 2025 that the immigrant workforce was negatively impacted with the current administration’s efforts to ensure legal immigrants were in the United States,” says Reed. “We did see a downturn in some projects. We did see some projects missing completion dates.
“But I’ll be clear” says Reed, “This association does support the federal administration’s efforts to secure the border. However, while doing that, we’ve got to be real about the number of immigrants needed to perform skilled trades on our projects in Alabama, and that’s certainly been negatively impacted recently.”
Reed says a path to get workers to job sites seamlessly and quickly is needed to fill positions currently available.
To help contractors navigate the country’s new immigration policy, the AGC of America has launched a new online resource center containing information that teaches contractors how to stay in compliance with immigration rules and how contractors should respond during such raids.
But the construction labor shortages are also attributable to a lack of skilled candidates in Alabama as well as around the nation.
“I think a lot of it has to do with a stigma of being in construction. Everybody’s supposed to go to college, and everybody’s supposed to be a doctor or a lawyer. We’ve tried hard to rebrand the path into construction because it’s lucrative, and you can have a great career,” Norrell says.
Norrell says the AGC of Alabama, for example, has formed relationships with schools around the state to expose students to the world of construction for their consideration.
One such effort is the Alabama AGC’s summer boot camps that introduces high school students to the many career opportunities available in nonresidential construction. The topics include plumbing and HVAC, nonresidential carpentry, electrical and construction related math.
Another initiative is the Associated Builders and Contractors’ Academy of Craft Training that targets high school students and gives them hands-on experience in the trades.
“We’re taking in about 750 students a year across Birmingham, Decatur, Mobile, and we’re about to open one up in Montgomery. We graduate about 600 a year and there’s 100% placement rate for those students seeking to stay in construction,” Hauser says.
Gail Allyn Short is a Birmingham-based freelance contributor to Business Alabama.
This article appears in the February 2026 issue of Business Alabama.
