Federal Reserve survey finds builders navigating softer demand, rising costs, and ongoing labor challenges
Residential Activity Continues to Lag
Survey results showed residential and commercial construction experiencing significant declines in activity across the region. Data also showed a year-over-year drop in active residential projects, continuing a trend that emerged in 2025.
Residential builders reported declining backlogs, fewer requests for proposals, and reduced project activity compared with industrial sectors, which have remained comparatively stronger.
Federal Reserve economist Erick Garcia Luna noted that residential construction consistently ranked among the sectors reporting the greatest challenges. “The story you’re going to hear over and over is that commercial and residential construction are being hit the hardest,” he says.
Competition Intensifies for Fewer Projects
As higher interest rates, economic uncertainty, and rising project costs continue to influence investment decisions, both businesses and households appear to be taking a more cautious approach to new construction projects. Respondents reported fewer projects entering the pipeline, creating increased competition among builders.
The survey also highlighted what one respondent described as a “stop-and-go” environment, where projects begin moving forward only to be delayed, scaled back, or paused as owners reassess costs and economic conditions.
Labor Challenges Persist
Even as activity slows in some sectors, labor availability remains one of the industry’s most pressing concerns. Nearly one-third of respondents reported increases in headcount, and many businesses continue hiring to meet demand in stronger market segments. However, labor shortages remain particularly acute in the skilled trades.
Wage pressures also continue to build. The survey found that skilled trade positions experienced some of the largest wage increases, with many employers reporting compensation increases exceeding 5%. At the same time, businesses experiencing slower activity have begun adjusting staffing levels. Roughly one-fifth of respondents reported reducing hours for existing employees, while a similar share reported reducing overall head count.
Cost Pressures Continue to Squeeze Margins
Construction businesses continue to face rising costs for materials, transportation, and other non-labor inputs.
Respondents reported widespread increases in non-labor input costs over the previous six months, with many citing increases between 1% and 10%. Rising fuel costs, transportation expenses, and petroleum-based products such as PVC were among the factors contributing to higher construction costs.
However, the survey revealed that many builders have been unable—or unwilling—to pass those costs fully on to customers. Instead, some businesses reported absorbing a portion of those increases to remain competitive in an increasingly price-sensitive market.
Maintaining Cautious Optimism Amid Uncertainty
While activity levels remain weak, respondents expressed more positive expectations for the second half of 2026. Most businesses expect activity to remain relatively stable over the next six months, but uncertainty remains a dominant theme.
Respondents cited ongoing concerns related to tariffs, geopolitical developments, labor availability, and future project demand. Backlogs are expected to remain under pressure, and cost increases are likely to continue.
For residential builders, the message is clear: Market conditions remain difficult, but opportunities still exist for businesses that can manage costs, maintain workforce capacity, and remain competitive in a tightening marketplace.
