Eric Gaus, chief economist at Dodge Construction Network, paid Portable Plants a visit this summer to discuss the economy, provide an update on the construction industry and offer insights into the construction labor market. This conversation was edited for brevity and clarity.
PORTABLE PLANTS: How would you characterize the health of the economy? What is your outlook for the rest of the year?
GAUS: We started 2025 with a lot of tailwinds. The financial situation for both businesses and consumers was really strong. We were powering through into 2025. The economy has weakened significantly since then for a lot of different reasons. The major one is that the Federal Reserve has interest rates well above the neutral rate – and that’s by design. There is still a lot of inflation and they’re trying to calm down the economy. It totally makes sense.
Additionally, the uncertainty that has arisen since the Trump administration came in has had a significant impact on the economy, dampening it considerably in the first half of the year. While I thought there was some hope for that uncertainty to be resolved, I’m starting to revise that opinion now. It seems that policy uncertainty will last a bit longer than anyone would find comfortable.
PORTABLE PLANTS: How has funding from the Infrastructure Investment & Jobs Act (IIJA) been used so far this year? Do you expect another infrastructure bill to surface once IIJA expires in 2026?
GAUS: I don’t think it’s very likely we’ll get a new infrastructure bill. This Congress and president don’t seem to be interested in that yet. The One Big Beautiful Bill already added a considerable amount to our deficit, so it’s going to be a really tough pill to swallow for Republicans to then add even more to the deficit. I find it an unlikely proposition that there would be more funding coming.
Most of the IIJA funding has been going toward streets and bridges. There have been numerous projects that have already been completed or have been allocated the money to start. The vast majority of IIJA funding had already been allocated prior to the second Trump administration coming into office.
PORTABLE PLANTS: How has the nonresidential sector fared so far this year? What types of projects are leading the sector’s performance?
GAUS: Manufacturing pulled back significantly in the first half of the year. Through April, it was down about 50 percent. That’s a ton, but we have to remember that manufacturing is coming off a ridiculous high. Our forecast is still for it to be higher than the pre-pandemic levels in terms of starts. Data centers are significantly contributing to nonresidential construction. Also contributing are large mega projects, particularly in the health care and prison spaces. There are several prisons in the New York tri-state areas that are offsetting Rikers Island being decommissioned.
PORTABLE PLANTS: What have been your biggest takeaways from the first half of the year for the residential sector? What is your outlook for the rest of the year?
GAUS: Residential has been struggling, particularly on the single-family side. Multifamily has been doing a little better, mostly due to the time lags between the construction process and the completion of multifamily projects. There were numerous projects that were planned last year that are going through the pipeline and coming out the other end. Whereas single-family tends to respond a bit quicker.
The other dynamic we’re tracking is the housing shortage. There is still, on a national level, a housing shortage. It’s a situation where there is going to be a lot of multifamily to cover the problem of affordability. It’s going to be regionally specific. The South is probably going to be slowing down a bit in multifamily, whereas the Northeast and Northwest are going to have a larger increase in multifamily, and single-family will slow down a little bit.
PORTABLE PLANTS: How has the nonbuilding sector fared so far this year and what is your expectation for the rest of the year?
GAUS: We’ve not changed our forecast very much for nonbuilding, largely because the tailwinds were so strong. If anything, fewer street and bridge projects started in 2024 than were expected, but they were all projects that had been slated through IIJA and allocated money. So those projects are getting pushed forward. Maybe there’s a little bit of a pullback to some degree, but then there are other projects that are getting delayed into 2025.
On the whole, we feel like nonbuilding has been pretty robust and will continue to be robust-ish through 2025.
PORTABLE PLANTS: What is the current state of the construction labor market?
GAUS: Economywide, the labor market is slowing down, and you can see that trickle straight through to the construction sector. We’re still adding jobs, just like the broader economy, but it’s definitely weakening. The mega projects are a significant problem, and that’s probably the explanation for some of the backlogs we’re seeing.
There are projects people want to get started, but they don’t have the workers to put the product in the building. These large, mega projects are exacerbating that problem because they’re sucking up all the resources – particularly data centers.
Part of the problem with the policies that are enacted currently is that these jobs are really attractive to foreign-born workers. On average, 20 percent of workers in the construction industry are foreign-born. That’s a pipeline that has just been shut off. Since the beginning of the year, about 750,000 foreign workers have left the employment market. That’s a ton of people, and you have to think that’s also coming out of the construction sector.
PORTABLE PLANTS: What advice would you give contractors, developers, and others as they plan for the remainder of the year and look to 2026?
GAUS: The No. 1 thing is to be patient. It’s going to feel very uncomfortable. I get clients asking me all the time, ‘What’s happening?’ We are just in a place where there’s a lot of uncertainty, and that feels very uncomfortable.
The good news is that businesses and consumers are in good shape. Overall, the economy is in a fairly good position. There are some issues that need to be worked out – the Fed needs to figure out if inflation or employment matters more going forward and whether to raise or lower interest rates – but we just have to be patient with that.
Related: Construction job openings down, labor scarcity remains