The construction industry enters 2026 with cautious optimism as new data from FMI Corporation projects overall U.S. construction spending to rise 1 percent compared with 2025 levels. While a single percentage point may seem modest, the story beneath the headline reveals significant variation across sectors, with some markets experiencing robust activity while others continue to face headwinds. Understanding where this growth is concentrated and how it shapes bidding strategies, resource allocation, and long-term planning is essential for builders who want to position themselves ahead of the curve. This article breaks down the key findings from the FMI 2026 North American Engineering and Construction Industry Overview and offers practical guidance for navigating the year ahead. For a broader look at how economic indicators shape construction markets, explore this guide to reading economic indicators for construction strategic planning.
The 2026 Spending Landscape: One Percent Growth with Deep Sector Divergence
The headline figure from FMI’s report projects U.S. construction put in place to increase 1 percent in 2026, recovering from an estimated 1 percent decline in 2025. This modest recovery masks a construction market that is anything but uniform. Nonbuilding structures are projected to lead all categories with 4 percent growth, driven by continued investment in power generation, water infrastructure, and environmental projects that benefit from previously committed funding streams.
Nonbuilding Structures Take the Lead
Power, water supply, and sewage and waste disposal projects are outperforming other segments as federal and state funding commitments materialize into actual construction activity. The 4 percent projected growth in nonbuilding structures reflects a multiyear cycle of infrastructure investment that began with legislative funding packages and is now reaching the construction phase. For contractors who specialize in heavy civil and environmental work, 2026 presents a favorable pipeline of opportunities, particularly in regions where water infrastructure modernization is a political and operational priority.
Data Centers: The Outsized Growth Story
The most striking growth figure in the FMI report belongs to data center construction, which increased 35 percent compared with 2024 levels. This segment has become a dominant force in nonresidential building activity, driven by the insatiable demand for cloud computing, artificial intelligence workloads, and digital infrastructure. The scale and speed of data center projects present unique challenges for builders, including compressed schedules, specialized MEP requirements, and intense competition for skilled labor and materials.
Contractors with experience in data center work are finding themselves in a strong negotiating position, but the rapid expansion also carries risks. Supply chain constraints for specialized equipment, particularly electrical switchgear and cooling systems, continue to create scheduling uncertainty. For a deeper dive into how data center construction is reshaping building practices, see this article on precast concrete solutions for AI data center construction.
Residential and Commercial: Mixed Signals
Residential construction continues to face affordability challenges, elevated interest rates, and labor shortages that constrain activity. While some multifamily segments show resilience, single-family starts remain below historical averages. Commercial construction presents an equally mixed picture. Office construction remains subdued as post-pandemic occupancy patterns stabilize, while industrial and warehouse construction benefits from e-commerce and reshoring trends. The retail segment is experiencing selective activity concentrated in high-growth suburban markets and adaptive reuse projects.
| Sector | 2026 Growth Outlook | Key Drivers |
|---|---|---|
| Nonbuilding Structures | +4% | Power, water, environmental projects |
| Data Centers | +35% vs 2024 | AI, cloud computing demand |
| Nonresidential Buildings | Flat to +1% | Industrial, warehouse selective growth |
| Residential | Flat to -1% | Interest rates, affordability constraints |
| Highway and Street | +2% to +3% | Infrastructure funding, repair backlog |
| Water Supply | +3% to +4% | Modernization, regulatory mandates |
Sector-by-Sector Opportunities: Where Builders Should Focus
FMI President and CEO Chris Daum emphasized that construction companies will need to carefully evaluate where to compete as market conditions vary by sector. The 2026 environment rewards specialization and strategic positioning rather than broad-based expansion. Builders who can identify the sectors with the strongest tailwinds and align their capabilities accordingly will outperform those relying on general market growth.
Infrastructure and Public Works
Public sector construction benefits from committed funding that provides visibility and stability. Sewage and waste disposal, water supply, and conservation and development projects are among the strongest performers. These segments tend to be less sensitive to interest rate fluctuations and economic cycles, making them attractive for contractors seeking predictable workloads. Key considerations include:
- Prevailing wage requirements and certified payroll compliance
- Bonding capacity for large public projects
- Experience with federal and state procurement processes
- Environmental permitting and community engagement requirements
- Longer project timelines but lower payment risk
Industrial and Manufacturing Construction
Manufacturing construction continues to benefit from reshoring initiatives and investments in domestic production capacity. Semiconductor fabrication plants, battery manufacturing facilities, and pharmaceutical production centers represent large-scale opportunities that require specialized expertise. These projects often involve complex coordination between general contractors, specialty trades, and equipment vendors, creating opportunities for firms that can manage integrated project delivery models.
Adaptive Reuse and Religious Structures
An unexpected bright spot identified in the FMI report is religious structures construction, driven in part by adaptive reuse projects. Vacant commercial spaces, former retail locations, and underutilized institutional buildings are being converted for religious and community use. This trend reflects broader shifts in how communities repurpose existing built assets. Contractors with experience in renovation, structural modification, and code compliance for change-of-use projects will find growing demand in this niche.
Strategic Responses for Builders Navigating Uneven Growth
FMI’s outlook makes clear that a rising tide will not lift all boats in 2026. Builders need deliberate strategies to capture opportunities in growing sectors while managing exposure in flat or declining segments. The following approaches can help construction firms navigate the uneven growth landscape.
Diversify Across Public and Private Markets
Firms that maintain a balanced mix of public and private sector work are better positioned to weather sector-specific downturns. Public infrastructure projects provide stability and predictable funding, while private sector work offers higher margins and faster project turns. The ideal mix depends on a firm’s bonding capacity, operational expertise, and geographic footprint. Builders who have traditionally focused exclusively on one side of the market should explore selective diversification.
Invest in Productivity and Technology
Labor constraints remain the single largest challenge facing the construction industry. With skilled worker shortages persisting across trades, productivity improvement through technology adoption is no longer optional. Building information modeling, prefabrication, modular construction, and project management software can help firms do more with less. The firms that invest in these capabilities now will have a competitive advantage when market conditions improve further. For guidance on strategic planning in this environment, read this resource on setting long-term goals in the construction business.
Strengthen Financial and Risk Management
In an environment of uneven growth, financial discipline becomes a competitive differentiator. Builders should focus on:
- Maintaining healthy cash reserves for equipment and working capital needs
- Diversifying surety relationships to maximize bonding capacity
- Implementing robust project cost tracking and variance analysis
- Negotiating material price escalation clauses in contracts
- Developing contingency plans for supply chain disruptions
Target High-Growth Submarkets
Rather than competing broadly, builders should identify the specific submarkets where demand is strongest and align their business development efforts accordingly. Data center construction, water infrastructure, and power generation offer the strongest near-term growth. Firms that develop reputations and repeat business in these niches can command premium pricing and build defensible market positions. For a comprehensive look at the 2026 construction outlook, see this analysis of cost, labor, and risk management strategies for 2026.
Preparing for the Year Ahead: Practical Steps for Construction Leaders
With 1 percent overall growth but wide variation by sector, construction leaders need to take proactive steps to position their firms for success in 2026. The following action items can help translate the FMI forecast into operational reality.
Review Your Bid Pipeline by Sector
Conduct a systematic review of upcoming bid opportunities sorted by sector and funding source. Prioritize projects in growth segments such as water infrastructure, power generation, and data centers. For firms that lack experience in these areas, consider teaming arrangements or joint ventures with established players as a pathway to enter new markets.
Evaluate Workforce Capacity and Capability Gaps
Labor availability will be the binding constraint on growth for many firms. Assess your current workforce against projected workload, identify skill gaps, and develop recruiting and training plans to address them. Consider partnerships with trade schools, apprenticeship programs, and veteran hiring initiatives as sources of new talent. Retention strategies, including competitive compensation, safety culture, and career development pathways, are equally important.
Build Resilience into Project Execution
Supply chain volatility and material cost fluctuations continue to challenge project execution. Builders should incorporate contingency planning into every project, including alternative material specifications, vendor diversification, and schedule buffers for critical-path items. Fixed-price contracts should include escalation clauses for major material categories, and change order processes should be clearly defined in owner agreements. For more on navigating the current market, check out this article on what the 2026 construction outlook means for strategic builders.
Monitor Leading Indicators
The construction spending forecast is just one data point in a complex economic picture. Builders should monitor leading indicators including architectural billings, material price indices, interest rate projections, and state-level infrastructure bond programs. Early signals of market shifts allow firms to adjust bidding strategies, resource allocation, and capital investment decisions before competitors react.
Key Metrics to Watch in 2026
- Architecture Billings Index (ABI) for forward-looking demand signals
- Producer Price Index for construction materials and supplies
- Federal funds rate decisions and their impact on project financing
- State and local bond measures for infrastructure funding
- Construction job openings and quit rates as labor market indicators
The construction market in 2026 rewards preparation over luck. Builders who understand the sector-by-sector dynamics, invest in productivity and workforce development, and maintain financial discipline will capture disproportionate share of the growth that is available. The 1 percent headline number obscures a deeper truth: in some sectors the market is booming, and in others it is treading water. The firms that thrive will be those that know which is which and act accordingly.