Construction industry
Construction industry
Overview
Morag Murray Director, Americas
The North American construction industry is gaining momentum from AI investment and advanced manufacturing in the US and infrastructure commitments in Canada. However, headwinds like tariffs and power supply constraints could slow its pace.
Construction industry output
US
In 2024, the US construction industry grew by 4.5% - a revision from the initial projection of 2.5%.¹ Last year’s growth was driven by robust investments in semiconductors, clean energy, infrastructure, and advanced manufacturing underpinned by the Inflation Reduction Act (IRA), the Infrastructure Investment and Jobs Act (IIJA), and the CHIPS and Science Act.
In 2024, the energy, utilities, and infrastructure sectors outperformed expectations with over 13% in growth. These sectors are expected to maintain momentum, with anticipated growth rates of 7.7% for energy and utilities and 11% for infrastructure, until 2028.1
In 2025, the industry faces a balance of resilience and cautious optimism. Despite the positive outlook, the industry is anticipated to see a slowdown in growth, with an expected annualized growth rate of 3.8% from 2025 to 2028.¹ Challenges such as trade tariffs and changes in immigration policies could impact margins, disrupt supply chains, and exacerbate labor shortages. However, improving lending conditions and increasing demand in sectors like AI-driven data centers are likely to support industry growth.
In 2024, data center construction spending surged by 56%, with a continued YoY growth rate of 33% recorded in March 2025.² While the AI boom is fueling unprecedented investment in data center infrastructure, scalability challenges related to power supply constraints may pose potential bottlenecks. The US administration’s focus on energy independence is expected to drive investment in fossil fuels. However, the renewable energy sector may face obstacles due to changing policy priorities, potentially impacting the pace of transition to clean energy solutions.
Given the evolving market landscape, it is important to assess the effects of these changes on a case-by-case basis and consistently review and integrate potential risks, backups, and suitable strategies into projects. A collaborative approach among stakeholders will be essential to navigating these challenges effectively. The construction industry has consistently demonstrated resilience, having weathered major disruptions from regional conflicts to pandemic-related setbacks. These experiences have strengthened its ability to adapt, positioning it well to manage the uncertainties of today’s market.
Canada
Canada's construction industry contracted by 1.8% in 2024, largely due to a slowdown in the residential sector and high financing costs amid restrictive lending policies.¹ However, as of early 2025, financing costs are beginning to decrease, and inflation has stabilized, potentially easing some pressures on the industry.
From 2025 to 2028, the industry is set to recover at an annual growth rate of 2.8%, supported by investments in transportation, renewable energy, well water and sewage infrastructure projects.¹
Growth will also be supported by investments in the housing, data centers, and healthcare sectors. Long-term industry growth will be fueled by the 'Invest in Canada' plan, which has allocated CA$166.5bn as of November 2024. The government plans to invest CA$193.3bn by 2028 in energy infrastructure, internet networks, trading ports, and public transportation.
Infrastructure investment remains strong, with the government allocating CA$30bn for highway and transportation expansions in Ontario alone, as outlined in the 2024 federal budget.
However, uncertainties continue to shape the industry’s outlook as Canada navigates political, economic, and geopolitical shifts. Recent immigration policy adjustments are expected to exacerbate existing labor challenges, while escalating US-Canada trade tensions could place additional pressure on the broader economy, including the construction industry.
Even though Canada relies less on imports compared to other countries, trade limitations may increase costs, particularly for MEP equipment, contributing to overall inflation. The exact impact remains uncertain as trade policies continue to evolve. Industry stakeholders must remain agile, stay informed of changes, and adapt supply chain strategies to mitigate potential risks. Additionally, skilled labor shortages in the commercial sector and a lack of skilled management remain significant challenges for 2025, further compounding the labor issues tied to immigration policy shifts.
Construction inflation
The North American construction industry faces significant challenges due to cost volatility, primarily driven by uncertainty around tariffs impacting material prices.
In 2024, as overall economic inflation eased, construction inflation in North America stabilized at around 3.5%. By late 2024, commodity prices either declined or remained stable, but they began to increase in Q1 2025 due to renewed concerns related to tariffs. Market sentiment remains cautious because of the anticipated volatility. Regional construction inflation is expected to range between 3% and 4% in 2025, with variations depending on sectors and locations.
A significant concern is the shortage of skilled labor, which is raising project costs, particularly in mission-critical sectors that continue to experience growth. The indirect inflationary impact of tariffs is increasing the cost of equipment repair and maintenance. Overall, the unpredictability caused by trade restrictions and tariff uncertainties is increasing risk across the industry.
- In 2024, copper and aluminum prices increased due to the optimism surrounding China's infrastructure stimulus. In the first quarter of 2025, prices for both metals rose again—speculative buying in anticipation of potential US tariffs on copper contributed to this rise. Later in the quarter, after tariffs were imposed on aluminum, its prices also began to climb. High global demand from the renewable energy sector and electrification initiatives continues to support these price increases. These metals, which are widely used in Mechanical, Electrical, and Plumbing (MEP) systems as well as façade systems, are placing additional cost pressure on complex construction projects. While prices are expected to stabilize in the short term, they are likely to continue rising in the long term.
- Flat steel prices have decreased in early 2025 due to a global oversupply and weak demand, but US tariffs have caused a rebound in domestic prices. While steel prices are lower compared to last year, tariff uncertainty means prices might rise again. In contrast, Canadian steel prices continue to face downward pressure.
- The 90-day pause on reciprocal tariffs and recent softening of US tariffs on China hasn't fully alleviated the impact on various building materials. Lumber prices jumped in the first quarter of 2025, while prices for cement, concrete, and drywall remained high. Canadian cement costs are also elevated.
- Labor remains a key cost driver, with the Construction Employee Cost Index in the US increasing to 2.9% YoY in March 2025, up from 2.4% in late 2024.³ Changes in immigration policy are tightening the labor supply, further fuelling wage inflation.
- In Canada, the country's heavy reliance on the US for construction materials is causing volatility in its economy and construction industry. Skilled labor shortages continue to impact pricing, and recent regulatory changes in several Census Metropolitan Areas in Canada have heightened overall cost pressures. Tariff-related uncertainty is prevalent across the country, leading to potential delays in construction plans due to an unclear outlook. As a result, elevated uncertainty and an additional risk premium remain in the Canadian market.
Supply chain outlook
Review of 2024
- In 2024, the supply chain for long-lead equipment (LLE) across the US and Canada faced persistent challenges, particularly in sectors like data centers and renewable energy.
- Battery prices remained volatile due to disruptions from key lithium suppliers.
- Extended lead times for critical components—such as transformers, switchgear, and cooling systems—were widespread. These delays were further intensified by surging demand driven by AI computing and data center expansions.
- Weather-related disruptions continued to impact supply chains in 2024, contributing to freight cost volatility. Rising fuel prices and labor expenses further pressured logistics networks. The American Trucking Associations highlighted persistent driver shortages and wage inflation as major factors behind cost instability.⁴
- Labor disputes at the ports significantly disrupted supply chains. In October 2024, the International Longshoremen's Association (ILA) initiated a strike affecting 36 US ports, halting operations and causing substantial economic impact.⁵ Similarly, Canadian ports faced disruptions due to labor actions, with the government intervening to end disputes at major ports in Vancouver and Montreal.⁶
- By the end of 2024, pricing and lead times became more consistent, helped by falling commodity prices and more stable material availability.
Outlook for 2025
- Q1 2025 was marked by heightened volatility in the US supply chain landscape, largely driven by a series of tariff announcements from the new administration. These policies impacted procurement strategies and increased cost pressures across key sectors, particularly data centers and high-tech manufacturing sectors.
- The demand for AI and high-performance computing will drive a surge in liquid cooling, which will account for 40% of new data center installations in 2025.
- While domestic assembly in the US remains strong in areas like UPS and switchgear, the heavy reliance on imported subcomponents, particularly from China, creates a strategic vulnerability. Reshoring efforts are in progress but are unlikely to scale meaningfully for several years.
- HVAC equipment, which relies heavily on aluminum and steel as raw materials, is also expected to see price increases due to tariffs on these materials.
- While Canada might not be as impacted by tariffs as the US, US-assembled equipment exported to Canada are likely to see price increases, as manufacturers pass on the additional costs.
- Lead times for large electrical equipment, especially transformers, which are largely imported, are projected to worsen in the near term, compounding existing backlogs. However, there is a market optimism that lead time for MCE in data centers will improve in the medium to long term, as established framework agreements optimize procurement cycles and vendor commitments.
- Despite a stable global supply chain index, freight and logistics in North America remain uncertain due to tariff-related disruptions. Labor shortages and port delays continue to drive unpredictability in transport networks.
- Operators will likely increase efforts to localize their supply chains, diversify vendors, and explore tariff-exempt sourcing options.
- As rising protectionism, tariffs and ongoing geopolitical shifts continue to unfold, organizations are expected to further adapt and strengthen their global supply strategies throughout the remainder of 2025, building greater resilience and driving innovation.
Sources
- Global Data
- US Census Bureau
- Employment Cost Index - March 2025, U.S. Bureau of Labor Statistics, April 2025
- Trucking industry eager to attract younger drivers, BNP Media, January 2025
- Port Employers, Union Dockworkers Reach Tentative Deal at East Coast, Gulf Ports, California Chamber of Commerce, January 2025
- Canada moves to end port lockouts and orders binding arbitration, The Associated Press, November 2024
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