To help our readers stay ahead of the curve, Insulation Outlook staff has rounded up key forecasts from our strategic industry partners, putting the data that drives business decisions in one place.

From FMI Corp.: Watch These Five Trends in the Built Environment to Drive Resiliency and Profitability

By Chris Daum

As we move into 2026, understanding the trends shaping the built environment is more important than ever. The industry is entering a transition year marked by heightened uncertainty, uneven performance across sectors and regions, and the convergence of powerful macro forces. But not all sectors, business models, and geographies will experience the same outcomes, so leaders who rely on broad assumptions rather than targeted insights risk being caught off guard as conditions evolve.

Organizations that take these steps will be rewarded in 2026:

1. Invest in people and your leadership pipeline;
2. Establish disciplined operating systems and data frameworks;
3. Build resilience in supply chains and business models;
4. Accelerate adoption of artificial intelligence (AI), automation, and digital tools; and
5. Understand sectors and geographies, and what is driving demand.

Resilience Is Now Mandatory

Many factors influence how construction demand will unfold through the remainder of the decade, including shifts in federal policy, global geopolitical dynamics, changing capital markets, and continued pressure on labor and operating costs. While no one can predict the future with certainty, several trends are already reshaping how and where investment occurs, and they will play an outsized role in determining who is best positioned for long term success.

The backdrop and demand mix are more complicated than overall construction spending totals suggest. There is still an elevated risk of a recession into 2026, given tight credit and challenges in many sectors for private development (e.g., residential). But despite this, construction overall remains stable, with extreme growth coming in data centers (a subset of the office segment), power, manufacturing, transportation, and water-related areas.

Executives who delve deeper into the headlines to truly understand their sectors and geographies will be able to best position their companies. They will also need to set aside time to develop the next generation of business and field leaders to ensure their companies remain resilient in the face of rapid change.

The following five trends are expected to shape engineering, construction, and the broader built environment in 2026 and beyond.

Trend 1: Diverging market conditions are reshaping construction demand.

The built environment is entering a period defined less by broad cycles. While overall construction activity remains supported by long-term fundamentals, performance is increasingly uneven across sectors and markets. Some private sectors are softening even as power and utilities, infrastructure, and other mission-critical segments continue to demonstrate strength.

Questions to consider:

• Where is your backlog concentrated, and are you exposed to sector-specific slowdowns?
• How are shifting funding sources and lending conditions influencing project timing and feasibility?
• Are your forecasting and planning processes flexible enough to account for uneven geographic and sector performance?

Trend 2: Power, data centers, and the infrastructure that supports them are driving the next wave of growth.

In some markets, data centers account for more than 25% of total nonresidential building construction. This trend remains a critical part of what is propelling construction spending and resource allocation. Growth is heavily linked to key inputs such as power, water, and grid and fiber access.

Questions to consider:

• How is growing demand for power impacting your markets and project pipeline?
• Are you positioned to support large-scale, energy-intensive, and mission-critical projects?
• How quickly can you shift resources to take advantage of large-scale public and private investments?

Trend 3: Sustainability, electrification, and resilience are becoming foundational requirements.

Sustainability and electrification are no longer driven solely by policy mandates or corporate commitments, as they are evolving into core economic and operational considerations. Rising energy demand, increasing electricity costs, and growing exposure to extreme weather events are pushing owners and public agencies to prioritize resilient, efficient, and durable infrastructure.

Questions to consider:

• How are climate and resilience requirements changing project scope and delivery expectations?
• Are sustainability initiatives aligned with economic performance and risk management?
• How prepared is your organization to support resilient and electrified infrastructure at scale?

Trend 4: Labor constraints and digital transformation are redefining performance gaps.

Labor availability remains one of the industry’s most persistent challenges in 2026, with the industry adding only 14,000 net new construction jobs in 2025, setting up for tighter labor conditions over the forecast period. The November Bureau of Labor Statistics Job Openings and Labor Turnover data show construction job openings around 300,000— or 4% of total U.S. job openings—which signals a market that is cooling but remains tight for many skilled workers as project complexity grows. The gap between retiring skilled workers and new entrants continues to widen, exacerbated by shifting immigration policies that affect the roughly 30% of construction workers who were born outside the United States.

Questions to consider:

• How resilient is your workforce strategy in a tightening labor market?
• Are digital tools integrated into your operating model or layered on top of existing processes?
• How are you measuring the return on investment from technology and talent initiatives?

Trend 5: Structural drivers continue to support long-term mergers and acquisitions (M&A) momentum.

M&A activity across the U.S. built environment has shifted from cautious optimism to steady execution. Despite setbacks from tariff turmoil, geopolitical risks, and labor uncertainties, the macroeconomic and structural forces that began aligning in prior years appear to be translating into sustained transaction activity. While volatility and uncertainty persist, market participants have, to some degree, recalibrated expectations around interest rates, valuations, and risks, enabling buyers and sellers to transact with greater confidence.

Questions to consider:

• How does M&A fit into your growth and succession strategy?
• Are you positioned to attract high-quality capital or acquisition interest at market valuations?
• What operational or strategic gaps can M&A help address?

Executive Summary: FMI’s 2026 North American Engineering and Construction Industry Overview

Total U.S. construction put in place is estimated to decline 1% in 2025, then in 2026 rise 1% to $2.2 trillion. Growth across sectors remains uneven, with data centers and infrastructure work offsetting softer cyclical building segments including multifamily, lodging, commercial, traditional office, amusement and recreation, and manufacturing.

U.S. construction entered 2026 with a late-cycle industry backdrop and a more complicated demand mix than headline totals suggest. Recession risk remains elevated into 2026, driven by a cooling labor market and a yield curve that has begun steepening, following the Federal Reserve’s rate cuts in late 2025. Credit remains tight, and vacancies and
delinquencies in multifamily and office continue to constrain private development. Data availability was also disrupted by the federal government shutdown that delayed several key releases, which has clouded planning and budgeting.

Residential markets are where the impact of high borrowing costs and affordability constraints are most visible. Single-family construction spending is projected to decline 5% to $420 billion, as payment-to-income ratios remain near record highs. Multifamily construction spending is forecast to fall 9%, with vacancies dropping despite a large wave of inventory that was added over the past several years. Improvements spending is expected to increase 6%, as high valuations and aging housing stock and energy-efficiency incentives sustain the renovations market.

Nonbuilding structures continue to provide the industry with stability and growth, led by power, water, and wastewater investment tied to grid modernization, resilience, and capacity expansion. At the same time, nonresidential buildings remain a tale of two markets. Traditional office, retail, and warehouse construction remain constrained by vacancy, underwriting discipline, and cautious capital, while data center work is expanding rapidly and increasingly dominates the office segment. (Data center facilities are currently classified by the U.S. Census as a subsegment of the office sector.)

The most important story for 2026 is divergence. More than ever, executives need to be cautious about interpreting the industry’s broad segment labels without looking at the mix beneath them, as well as regional makeup and differences. The practical implication for strategy is disciplined selectivity. Lean into the most durable demand streams, especially power, water, and data-center-adjacent work, while staying conservative on rate-sensitive private development and managing labor, schedules, and procurement risk around megaproject delivery.

Chris Daum is the President and CEO of FMI Corp. (www.fmicorp.com). Excerpted with permission from 2026 North American Engineering and Construction Industry Overview. Daum oversees the management of all FMI businesses and services, and leads the firm’s strategic growth efforts. Visit https://fmicorp.com/insights/construction-outlook to download the full report.

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From Sage Policy Group, Inc.: 2026 Economic Outlook

By Anirban Basu and Zack Fritz

2025 was, from an economic perspective, absolutely wild:

• Longest federal government shutdown in U.S. history? Check.
• Trade policy we haven’t seen since the 1930s? That too.
• A massive spending and tax bill with the stranger-than-fiction name of One Big Beautiful Bill Act (OBBBA)? Why not?

In our 2025 forecast—which held up decently well, all things considered—Zack wrote:

There are two huge question marks heading into the year. First, policy uncertainty is a pain regardless of how it resolves, but a quick resolution—one way or another—would help everyone.

Second, inflation. If it speeds up-oh no. If it falls back toward 2%, well, the opposite of oh no.

Those are still big, scary questions heading into 2026, though perhaps not the biggest nor the scariest. But it is not all doom and gloom. In some ways, 2026 has the potential to be better than 2025.

An Early 2026 Turbo Boost

Many households will get chunky tax refunds in 2026, due to OBBBA deduction changes. These refunds will function like stimulus checks, albeit ones that mostly go to higher income households.

Optimistically, this could give much-needed warmth to a cooling economy. Pessimistically, this will cook the economy into a microwaved Hot Pocket—parts of it scalding hot, others so frozen you could crack your teeth on them. Sticking with the food analogies, this will likely cause a sugar rush. Expect lots of big-ticket purchases: cars, travel, other durables, etc.

Will businesses expand to meet the elevated demand? If so, this rush will provide much needed stability to a flagging labor market, at least for a while. If businesses instead respond to greater demand with higher prices (instead of more employees/production capacity), expect inflation to accelerate and growth-boosting effects to be minimal.

Policy Uncertainty

Despite concerns about tariffs and uncertainty, we were relatively optimistic about the second Trump administration’s economic policy. This was a pretty widely held sentiment in late 2024, and one that proved woefully overoptimistic.

Yes, the OBBBA has some nice tax provisions for businesses, but deregulation fell well short of expectations, specifically for construction.

And then there were tariffs, larger and more volatile than virtually anyone thought possible. Our November 2025 effective tariff rate of 16.8% (https://budgetlab.yale.edu/research/state us-tariffs-november-17-2025) is the highest since the 1930s.

The Supreme Court is probably going to invalidate* the tariffs authorized by International Emergency Economic Powers Act (IEEPA), which will drop the effective rate to an estimated 9.3%. That is better but still the highest rate since the 1940s. (*This economic outlook was published prior to the Supreme Court’s ruling, https://budgetlab.yale.edu/research/state-us-tariffs-scotus-ruling-update.)

It is impossible to tell when and to what degree tariffs will raise prices, and the economic effects of new immigration policies are just as difficult to interpret. We simply don’t have great data on undocumented workers.

What is clearer is that trade policy has put the economy into a holding pattern, with certain industries, such as manufacturing (-63,000 jobs through the first 11 months of 2025), rapidly losing altitude.

And then there is the fact that the U.S. government took a stake in 14 different companies in 2025, ending a 60+ year streak during which the government did not take a stake in even a single healthy company. This is simply not capitalism.

Will 2026 bring more policy certainty? Hopefully, but who really knows? We will get a new Federal Reserve (Fed) Chair around June, and there are concerns about how that will affect Fed independence. Mid-term elections in November will also amp up the uncertainty.

Even so, the consensus view seems to be a calmer 2026 on the policy front. We will believe it when we see it.

Inflation

Looking to 2026, inflation will probably keep plodding along in the same 2.5% to 3% year-over-year range that it has hovered in for the past 18 months, at least at the start of the year.

It is tempting to dismiss 3% year-over-year inflation as no big deal. Tempting, but wrong. The difference between 2% and 3% annual inflation is not 1%, it is 50%. If prices increase at a 2% annual rate, they will double every 34.5 years. At a 3% annual rate, every 23 years.

Stubbornly above 2% inflation also puts the Fed in a tough spot, and they are already at risk of losing their credibility as inflation fighters.

A final note: There’s decent reason to think inflation will peak in the first half of 2026, though we expect it to remain above target throughout the year.

Job Growth and Unemployment

Job growth waned throughout 2025, and the unemployment rate continued to trend higher.

We are worried about the labor market in 2026. If unemployment rises by the same amount that it did in 2025, we will be looking at a 5.2% rate by the end of the year. Outside of the pandemic-affected months, that would be the highest rate in over a decade and a pretty clear sign that we are heading for recession.

The Great Stay

Hiring (the act of a company actually hiring a person, which is different from job growth, which refers to the net change in employment) was as sluggish as a foot race between our past two presidents in 2025, slower than in any year on record other than 2009 (not a particularly pleasant year for the economy, if you will recall).

Fortunately, that lack of hiring was accompanied by a historically low quit rate and a relatively low layoff rate. As a result, unemployment did not increase by that much. It was a great year to have a job and a terrible year to need one.

This dynamic has made the economy fragile without causing that much damage—at least not yet, anyway. If hiring picks up in 2026, conditions should improve quickly. If layoffs pick up, things could get dark quickly.

Youth Unemployment

20- to 24-year-olds has increased about 3 percentage points, well above the 1.2 percentage point increase in the economywide rate.

Is this due to artificial intelligence (AI)? Maybe at the slimmest margins, but it is mostly the lack of hiring that’s pushing young adult unemployment higher. If AI were to blame, we would expect a larger increase in college educated unemployment.

For many young adults at the very start of their careers, faster hiring is an absolute imperative for 2026. Unfortunately, we think it could be another year of sluggish hiring.

Nonresidential Construction

Here is the simplest way to think about the nonresidential segment: Construction spending on data centers is up 105% over the past 2 years, while spending on all other private categories is down 6%.

Data center construction will continue to grow in 2026, but that category accounts for just 3% of total nonresidential construction activity.

We expect a slew of factors—such as higher rates, policy uncertainty, and potentially higher material prices—to continue to weigh on overall nonresidential activity, especially during the first half of the year. Nonresidential activity will hopefully begin to rebound by the end of 2026, especially if borrowing costs come meaningfully lower.

It should be noted that economists are less optimistic than contractors about the nonresidential outlook; 55% of contractors expect their sales to increase over the next 6 months, according to the Associated Builders and Contractors’ December 2025 Construction Confidence Index, while just 22% expect them to decline. For what it is worth, we hope they are right.

Anirban’s Outlook

• 2026 will offer solid economic outcomes for the few, and mediocre-to-poor results for the many. In other words, the K-shaped recovery will continue, with corporate earnings growing strongly as AI-based productivity gains begin reshaping cost structures; the stock market edging higher as the Federal Reserve continues its efforts to lower rates; the OBBBA reducing tax liabilities, especially for upper-income households and corporations; the wealthy continuing to spend; and investment in energy production and distribution expanding due to a growing need for electricity, including from data centers.
• There is enough there to keep the GDP expanding, particularly during the first half of the year. But many Americans and regions will feel the effects of stagflation, with the labor market continuing to struggle to create living wage opportunities and inflation remaining meaningfully above the Federal Reserve’s 2% target.
• In my mind, the wild card is the stock market. I can imagine a scenario in which inflation readings turn out hotter than anticipated, consumer confidence declines further, corporate earnings sag, the stock market swoons, and even wealthier households pull back on spending after a tax cut-induced roaring first half of the year. So, watch out for the back half of 2026. The economy could supply plenty of drama as mid-term elections approach.

Zack’s Outlook

• Inflation peaks in the first quarter of 2026 but still spends most of the year hovering in the mid-2% to low-3% range. This is an awkward level for the Fed. Too fast to ignore, too slow to prioritize if the labor market crumples.
• Not that I expect it to fully crumple—more of a shuffling limp. Job growth stays slow. Unemployment keeps creeping higher.
• Optimistically, things will improve in the second half of the year. If inflation slows, the Fed will be able to cut rates more than expected, giving a much-needed boost to growth. I expect four cuts next year (the Fed projects only one). I really hope I am right about that.
• Pessimistically, I am still worried about policy uncertainty. I doubt I am alone, and worried business owners hold off on investments. It would really help if the pace of economic policymaking slowed.
• Big picture, my outlook for 2026 includes neither a recession nor stellar growth. We will get a plodding economy that, with any luck, picks up toward the end of the year.

Excerpted with permission from Sage Economics. Visit www.sageecon.com for more information.

Anirban Basu is Chairman and CEO of Sage Policy Group, Inc., an economic and policy consulting firm headquartered in Baltimore, Maryland. Basu serves as the Chief Economist to Associated Builders and Contractors and as Chief Economic Adviser to the Construction Financial Management Association. Zack Fritz is Chief Operating Officer at Sage Policy Group and coauthor of the Sage Economics Newsletter.

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From the American Institute of Architects (AIA): Consensus Construction Forecast

The latest Consensus Construction Forecast expects a modest 1% increase in overall building spending for 2026, rising to just 2.2% in 2027. “Spending on nonresidential building over the second half of last year was disappointing,” said former AIA Chief Economist Kermit Baker, Hon. AIA, Ph.D. “As of midyear last year, members of the AIA Consensus Construction Forecast panel were projecting that spending on buildings would be up almost 2% for 2025, followed by a similar gain this year. Now this modest forecast gain looks instead to have been a decline of a similar magnitude, with disappointing results across the board.”

While the overall outlook is flat, performance varies significantly by category. Spending on commercial facilities is expected to rise by 3% in 2026, followed by a 3.5% increase in 2027, according to the Consensus Construction Forecast. In contrast, manufacturing spending is projected to decline by 3.9% this year, with an additional 0.9% drop next year. Institutional facilities are anticipated to see steady growth, with spending increasing 2.7% this year and 2.8% in 2027.

Data centers are expected to experience strong growth over the next 2 years, while traditional office spending, excluding data centers, is projected to decline sharply during the same period. Retail facilities, including warehouses, are forecast to see minimal growth this year, with only modest gains in 2027. Institutional categories, known for more stable spending, show mixed results. Health-care facilities are projected to achieve mid-single-digit growth this year and next, while spending on education and amusement and recreation facilities is expected to remain nearly flat over both years.

Visit www.aia.org for more information.

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From the Associated General Contractors of America (AGC): 2026 Construction Hiring and Business Outlook

AGC’s industry outlook shows most contractors have been affected by tariffs, and one in three have felt the impacts of enhanced immigration enforcement, yet most firms plan to add staff if they can find workers.

Construction contractors have dampened expectations for 2026, aside from surging demand for data centers and power facilities, amid broader worries about the direction of the economy, according to Dampened Expectations: The 2026 Construction Hiring and Business Outlook (Outlook), which AGC and Sage released in January 2026. In addition to lower expectations, contractors report they have been impacted by tariffs, enhanced immigration enforcement, and challenges finding qualified workers.

“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 CEO. “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 the Outlook measures contractors’ expectations for different market segments via a net reading—the percentage of respondents who expect the available dollar value of projects to expand compared to the percentage who expect it to shrink. The highest net reading, 57%, is for data centers. Specifically, 65% of respondents expect the market for data center construction to increase, compared to just 8% who expect it to shrink. Contractors remain bullish about power projects as well, which recorded a net reading of 34%.

Contractors are moderately optimistic about hospitals, other health-care facilities, water and sewer, and manufacturing. Within health care, non-hospital facilities, including clinics, testing facilities, and medical labs, recorded a net reading of 24%, followed by hospital construction with a net reading of 20%. Water and sewer had a net reading of 16%, and manufacturing posted a net reading of 15%.

The net reading for construction of transportation structures, such as airport and rail projects, fell from 29% to 11% in 2025. The reading for bridge and highway construction dropped 14 percentage points to 10%.

Net readings declined as well—but remained modestly positive—for warehouse, federal work, multifamily residential projects, and public building. Expectations for contracts for federal agencies such as the General Services Administration, Department of Veterans Affairs, U.S. Army Corps of Engineers, and the Naval Facilities and Engineering Command fell from 22% to 5%, while the multifamily residential net slid from 12% to 4%. The net for public building dropped as well, from 14% to 1%.

The net reading for K–12 construction declined from 13% in 2025 to -1% in this year’s survey. Higher education slipped from a net of 12% to -5%. Expectations for education construction have been weakening for several years, with both K–12 and higher education showing decelerating growth since 2022, aside from a brief uptick in higher education in 2024.

Expectations for lodging, private office, and retail construction were the three most negative segments in 2026. The net reading for lodging fell 14 points, from 7% in 2025 to -7% in this year’s survey. Private office declined by 11 points to -14%, while retail dropped 13 points to -18%.

In addition to lowered expectations, many contractors also report being impacted by new tariffs and enhanced immigration enforcement. Roughly 70% of firms report being affected by tariffs. Forty percent report responding to actual or proposed tariffs by raising bid prices, and 20% of firms added price-sharing adjustments or other terms to contracts. While 35% report passing most or all tariff-related costs on to project owners, 11% say they absorbed most or all tariff costs.

One-third of firms (33%) report having been affected by immigration enforcement actions in the past 6 months. Six percent report a jobsite or other site was visited by immigration agents. Eleven percent report workers left or failed to appear because of actual or rumored immigration actions, and 24% report subcontractors lost workers.

In addition, more than three-fifths (63%) of respondents report that an owner postponed or canceled a project in the past 6 months. When asked why, 37% cite a lack of funding or uncertainty about a funding source, whether federal, state, or private. More than one in three firms (34%) say project financing was unavailable or too expensive. Just under a quarter (23%) of firms say increasing material or labor costs played a role.

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% of firms. The next three most-cited concerns were workforce related: 57% of respondents cited insufficient supply of workers or subcontractors, 56% selected rising direct labor costs (pay, benefits, employer taxes), and 53% identified worker quality.

Despite their broader concerns, most firms anticipate adding workers in 2026 to meet the needs of current and planned projects. More than three-fifths (63%) of firms expect to add to their head count, compared to only 15% who expect a decrease. However, more than four out of five firms report having a hard time filling hourly craft positions (82%) or salaried openings (80%)—a higher proportion than at any point in the past 3 years.

Officials with 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 (AI) or plan to increase investment in it, up from 44% 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.”

AGC officials said one of their top priorities this year will be to get Congress to pass a new surface transportation bill before the current one expires in September. They will also continue to urge the administration and Congress to address workforce shortages through expanded lawful, temporary work visa programs for construction, and increased investment in workforce development. And they are calling for greater clarity and restraint around tariff policy and for practical permitting reforms to reduce delays.

“With supportive infrastructure funding, workforce, trade and permitting policies in place, construction can continue to grow the economy, deliver essential projects, and expand access to high-paying career opportunities,” Shoaf said.

The 2026 Construction Hiring and Business Outlook survey was conducted from November 4 through December 15, 2025 and drew 951 respondents from construction firms across 49 states and the District of Columbia. Participating companies represented a broad range of revenue and employment sizes. About 30% of respondents reported employing union workers most or all of the time, while roughly 60% identified as open-shop contractors.

Visit www.agc.org for more information.