Washington, D.C., September 18, 2025
News Summary
Small construction firms are struggling with significant labor shortages and increasing material costs, impacting their project pipelines. Recent data indicates a decline in construction backlog, particularly affecting those with revenues under $30 million. Meanwhile, larger companies continue to thrive, exacerbating the gap. Factors such as policy uncertainty and tariff regulations contribute to project delays. Industry leaders emphasize the need for urgent workforce solutions, including immigration reform and better retention strategies for veterans and women, as the sector grapples with these persistent challenges.
Washington, D.C. – Small construction firms are grappling with significant labor shortages and increasing material costs, leading to strained project pipelines. In August, construction backlog declined, indicating a widening gap between smaller contractors, those with less than $30 million in revenue, and larger companies that consistently see pipeline expansion due to their scale. This trend reflects a broader struggle in the sector, with the National Association of Home Builders reporting declines predominantly in nonresidential construction expenditures.
While larger firms, specifically those with revenues exceeding $100 million, continue to maintain robust pipelines, the situation is markedly different for their smaller counterparts. Anirban Basu, chief economist at ABC, highlighted that the recent drop in backlog is closely associated with ongoing declines in nonresidential construction spending. The heavy industry and infrastructure categories, however, have shown resilience, maintaining stable backlog levels. Conversely, commercial and institutional projects have seen a downturn, with backlog now at an average of 8.3 months, down nearly one month from previous levels.
Several factors contribute to the decline in private construction work. Rising material costs, continuing labor shortages, and policy uncertainty are cited as leading causes. Tariff regulations have further complicated project timelines, with about 25% of contractors reporting delays or project cancellations linked to import tariffs.
Despite a sense of cautious optimism among contractors, challenges persist. Uncertainty regarding economic headwinds continues to cloud the outlook for many firms. During the Elevate 2025 conference, industry leaders underscored the urgent national workforce crisis facing the construction sector, which has been termed a national security threat. Panel discussions proposed approaches to address workforce shortages, including immigration reform and underscoring recruitment efforts targeting veterans and women.
Addressing the workforce issue is paramount, especially as Labor Secretary Lori Chavez-DeRemer emphasized the need for accessible immigration systems for companies that depend on foreign labor. An alarming trend reveals that many veterans leave their initial civilian jobs within a year, pointing to the urgency of collaborative retention strategies in construction.
Only 10% of construction firms currently utilize temporary work visa programs, despite widespread labor shortages. A recent survey by the Associated General Contractors (AGC) disclosed that 92% of construction firms are struggling to find qualified workers, resulting in substantial project delays. Nearly 78% of firms reported delays in the past year, directly linked to workforce shortages, which are estimated to have created an annual economic impact of approximately $10.8 billion due to extended project timelines.
The construction industry suffered significant job losses during the pandemic, with nearly a million jobs lost and many workers not returning. This situation has intensified reliance on undocumented immigrant labor, further complicating project timelines and budgets.
Moreover, nearly half of the construction firms indicated poor leadership is pushing women out of the industry, leading to an urgent need for career support and mentorship. Conversely, there has been a recorded increase of 26% in open construction jobs at the end of July, marking the highest level in over a year.
In response to these challenges, the construction sector is actively investing in workforce development and technological solutions aimed at mitigating labor shortages. The AGC has called for enhanced funding for vocational education to address long-term workforce issues within the industry.
Frequently Asked Questions
What are the primary challenges facing small construction firms?
Labor shortages and rising material costs are the primary challenges, leading to decreased project pipelines and increased project delays.
How have larger construction firms fared compared to smaller ones?
Larger firms, particularly those generating over $100 million in annual revenue, are continuing to expand their project pipelines, while smaller firms are experiencing a decline in backlog.
What factors are contributing to labor shortages in construction?
Factors include rising material costs, policy uncertainty, and the need for better retention strategies for workers, including veterans.
What is the economic impact of labor shortages on the construction industry?
Labor shortages in the construction sector are estimated to result in an economic impact of approximately $10.8 billion annually due to increased project timelines.
What steps are being taken to address workforce shortages in construction?
Strategies include immigration reform, targeted recruitment of underrepresented groups, and increased investment in workforce development and vocational education.
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Additional Resources
- Construction Dive: Labor Crisis as National Security Issue
- Scotsman Guide: Labor Shortages and Immigration Crackdowns
- AZoBuild: Article on Construction
- Wikipedia: Construction Industry
- Axios: Trump and Immigration Impact on Construction
- Google Search: Construction Labor Shortage
Author: STAFF HERE PHOENIX WRITER
PHOENIX STAFF WRITER The PHOENIX STAFF WRITER represents the experienced team at HEREPhoenix.com, your go-to source for actionable local news and information in Phoenix, Maricopa County, and beyond. Specializing in "news you can use," we cover essential topics like product reviews for personal and business needs, local business directories, politics, real estate trends, neighborhood insights, and state news affecting the area—with deep expertise drawn from years of dedicated reporting and strong community input, including local press releases and business updates. We deliver top reporting on high-value events such as the Waste Management Phoenix Open, Cactus League Spring Training, and Arizona State Fair. Our coverage extends to key organizations like the Greater Phoenix Chamber of Commerce and Visit Phoenix, plus leading businesses in technology and healthcare that power the local economy such as Intel and Banner Health. As part of the broader HERE network, including HERETucson.com, we provide comprehensive, credible insights into Arizona's dynamic landscape.
