Optimism Brewing for Construction Firms in 2025

Re-Published With Permission From Construction News and Review

By Kerry Smith Buck

Despite higher interest rates, a challenging lending market and price inflation, the construction industry fared well in 2024.

Last year saw a 12 percent increase in gross output from construction projects, with total U.S. construction spending reaching $2 trillion. Despite a talent shortage, employment in the construction industry hit 8.3 million in July, surpassing the 2006 peak of 7.7 million.

The Dodge Momentum Index, a measure of nonresidential spending, has been steadily increasing since the second quarter of 2024.

In its 2025 Engineering and Construction Industry Outlook, Deloitte analysis based upon the Oxford Economic Model – a respected macroeconomic forecasting tool – found that 2025 is likely to see a decrease in short-term interest rates that should continue through this year and into 2026.

Government investments through the Infrastructure Investment and Jobs Act, the Inflation Reduction Act and the CHIPS and Science Act are expected to continue driving growth, Deloitte says, in manufacturing and energy-related construction.

Data center construction is not expected to take a breather in 2025, thanks to widespread adoption of artificial intelligence and advanced computing.

Misha Nikulin, managing director for Deloitte Consulting LLP, says the U.S. construction industry in 2025 is poised for a year of moderate growth, namely due to four factors/key trends that will shape this year:

• Labor – the construction industry will continue learning how to manage the mismatch between labor and demand.
• Finance – engineering and construction firms will strive to continue driving growth from strategic divestitures and capital allocation strategies and the increased role of private equity.
• Policy Changes – companies will seek to maximize value, reduce risks and remain agile in the face of a shifting policy landscape.
• Increasing Technological Integration – evolving technologies will continue to transform engineering and construction operations across the value chain.

“After such a challenging 2024, we expect 2025 to be a year of moderate growth,” said Nikulin. “This follows a few years of economic uncertainty.” "It’s no secret that material and labor costs keep rising,” he added, “but we see a continued lowering of interest rates in 2025.”

With regard to the labor-demand mismatch, Nikulin says construction andengineering firms are expected to deploy strategies to address the ongoing challenge.

“As these sectors continue to grow, the gap will only intensify,” he said, noting that the persistent labor gap is affecting skilled labor which in turn raises overall project costs in construction.

Deloitte is anticipating construction wages to continue increasing through 2025. Nikulin says wages in construction have increased every month over the past five years by a total of 20 percent and that this trend will likely continue in 2025.

There is a somewhat startling trend in the average age of a U.S. construction worker. According to the National Center for Construction Education & Research, in just five years the average age of a craft worker in the U.S. will be 46 – compared with the average age of 42 (in 2023) and 40.8 in 2015. And in Deloitte’s 2023 study, it identified that one-fifth of construction workers are age 55 or older. The aging of the workforce adds pressure to an already taut set of skilled talent. With such labor shortages – today and tomorrow – construction organizations must evaluate upskilling and reskilling options.

Anser Advisory LLC (a subsidiary of Accenture) CEO Bryan Carruthers says that as skills shortages across construction industry disciplines create challenges in filling open positions, industry leaders must lean into comprehensive solution options to upskill and reskill current and future talent.

“The construction industry comprises not only craft and trades laborers but administrative and management occupations as well,” he said. “In 2020, construction and extraction occupations – such as construction laborers, carpenters and electricians – accounted for about three-fifths of those employed in the construction industry, while another one-fifth were employed in management, business and financial operations occupations.”

Installation, maintenance, repair and office and administrative support occupations accounted for 5.7 percent and 5.1 percent respectively, Carruthers noted. According to modeling by the Associated Builders and Contractors, the construction industry needed to attract an estimated 546,000 additional workers on top of the normal hiring pace (in early 2023) to meet the demand for labor. Those vacancies were still high by November 2023, according to the January 2024 U.S. Bureau Dept. of Labor and Statistics report, which noted 459,000 construction job openings in the U.S. Filling these roles with skilled professionals is vital to America’s economy and infrastructure rebuilding initiatives.

While federal funding was provided through the Infrastructure Investment and Jobs Act to focus on roads, bridges, and transit systems, these projects require skilled and qualified workers to move forward or the funding will dry up and the projects won’t happen.

According to Julia Pollak, an economist at ZipRecruiter, the number of people actively applying for construction jobs online fell about 40 percent between 2019 and 2020 and has been flat ever since.

While the pandemic only complicated existing workforce issues, she says, other factors include mega projects from chip manufacturing plants, clean energy facilities and infrastructure projects, which demand qualified workers at scale. Additionally, skilled workers are aging, creating concerns about future pipeline talent. Fewer workers are entering the skilled trades, meaning this is a construction labor and a skills shortage.

Between 2002 and 2020, the percentage of construction workers over 55 nearly doubled, from 11.5 percent to 22.7 percent.

According to ABC Chief Economist Anirban Basu, for each of these workers – one in four who are older than 55 – each loss of an older worker equates to a loss of a productive, experienced professional.

“Retirements will continue to whittle away at the construction workforce,” Basu said. “Many older construction workers are also the most productive, refining their skills over time. The number of construction laborers, the most entry-level occupational title, has accounted for nearly four out of every 10 new construction workers since 2012. Meanwhile, the number of skilled workers has grown much more slowly or, in the case of certain occupations like carpentry, declined.”