2026 North American Engineering and Construction Outlook: Second Quarter
Where is the construction industry heading — and what does it mean for your business?
FMI's Q2 2026 North American Engineering and Construction Outlook delivers a full-spectrum forecast across 19 market segments, grounded in current spending data, policy shifts, and macro conditions so you can plan with confidence in an uncertain year.
Key takeaways from the report:
- A recession without a national recession. For the first time in 60+ years, construction contracted outside of a broader economic downturn. Elevated interest rates, tighter lending standards, and pipeline exhaustion drove the 2025 decline.
- Data centers and power are the real story. Office construction is up 6% in 2026, driven entirely by data centers, which will account for over half of all private office spending. Power construction accelerates to 14% growth by 2028.
- Water infrastructure leads all nonbuilding segments. Sewage and waste disposal (+8%) and water supply (+5%) are top performers, driven by WIFIA financing, PFAS compliance mandates, and industrial demand from data centers and manufacturing.
- Residential remains the primary drag. Single-family spending is down 2% as affordability tightens while 30-year mortgage rates climbed back to 6.22% in March. Builder sentiment has been below break-even for 23 consecutive months.
- IIJA reauthorization is the biggest policy wildcard. The surface transportation authorization expires September 30, 2026. Without reauthorization, highway and transit funding reverts to pre-IIJA levels.
- The Iran conflict is rippling across the industry. Rising oil prices are pushing diesel, asphalt, and freight costs higher while simultaneously elevating Treasury yields and mortgage rates, affecting everything from single-family demand to highway project margins.