The construction industry is heading into 2026 with a mixed bag, and at Alliance Solutions Group, we've been watching these shifts closely.
Every year, we dig into the data from the Associated General Contractors of America and Sage's annual Construction Hiring and Business Outlook to understand where the industry is headed. This year's report, titled Dampened Expectations, tells an honest story: there's real demand out there, but the landscape has gotten more complicated.
Data centers and power facilities are surging. Five market segments have flipped to negative expectations, up from just two last year. Sixty-two percent of firms say recession risk is their top concern. And the labor shortage? It's not getting easier. Eighty-two percent of contractors are struggling to fill craft positions.
For contractors, the question isn't whether there's work. It's whether your business is set up to manage the complexity that comes with it.
Here's what we're paying attention to, and what we think you should be thinking about, too.
Data Centers Are Booming. That Doesn't Make Them Simple.
The biggest headline in this year's outlook is the continued surge in data center demand. According to the AGC and Sage report, data centers posted a net reading of 57 percent, the highest of any market segment and the only one to see double-digit growth from a year ago. Power facilities came in second at 34 percent, and those two segments are the only categories where contractor confidence actually increased compared to last year.
The demand is real, and it's being driven by AI, cloud computing, and the broader expansion of digital infrastructure.
But here's the part of this story that doesn't always get enough attention: data centers are resource-intensive in ways that directly affect the communities where they're built. They require significant energy, large volumes of water for cooling, substantial land, and major infrastructure investment. As these projects multiply, the conversations around them are getting bigger, and rightly so. Communities are asking harder questions about environmental impact, strain on local utilities, long-term sustainability, and who bears the cost of supporting these facilities.
As a firm that works closely with contractors, we think this matters. Growth is good, but not if it comes without careful planning.
For contractors, data center work can be a real opportunity, but it also demands strong cost controls, accurate forecasting, and clear visibility into project performance from day one. These are complex, resource-heavy projects, and the margin for error is smaller than it might look from the outside.
The takeaway isn't just that data centers are a growth area. It's that the kind of work driving demand right now requires contractors to manage risk more carefully than ever.
The Rest of the Market? Contractors Are Playing It Cautious.
While data centers and power projects are running hot, the broader picture is more guarded.
The AGC report shows that five market segments now carry negative net expectations, up from just two in last year's survey. Retail, private office, and hotel construction are seeing the weakest outlook. And even the segments that are still expected to grow, like healthcare, manufacturing, water and sewer, are seeing lower confidence compared to a year ago.
That said, contractors aren't sitting on their hands. Nearly 40 percent report backlogs that are bigger than a year ago, and 63 percent still plan to add workers this year. The work is there. But firms are being more selective about the work they take on and more focused on protecting their margins.
From where we sit, this is actually the right instinct. When the market shifts, the contractors who come out ahead aren't the ones chasing every opportunity. They're the ones who know exactly which projects are profitable, where costs are moving, and how fast they need to act on financial decisions. That kind of clarity doesn't come from spreadsheets updated once a month. It comes from having real-time visibility into your numbers.
Economic Uncertainty Isn't Going Away
If there's one theme that runs through this entire outlook, it's uncertainty.
Sixty-two percent of contractors cited an economic slowdown or recession as their top concern for 2026. That's not a small number. And it's compounded by everything else on the list: tariff policies that keep shifting, tighter project financing, rising material costs, and immigration enforcement pressures that are affecting labor availability in certain regions.
The AGC report also notes that many firms have already seen owners postpone, scale back, or cancel projects. That's the kind of environment where one delayed decision or one missed cost trend can ripple through a contractor's entire pipeline.
We talk to construction firms every day, and what we hear is that the challenge isn't just winning work. It's understanding whether the work is financially sound before you commit to it. That requires up-to-date job cost data, connected reporting, and systems that let leadership act on current information rather than catching problems after the fact.
If your financial data lives in disconnected spreadsheets or your reports are running weeks behind, that's not just an inconvenience. In this kind of environment, it's a real business risk.
The Labor Shortage Is Still Squeezing the Industry
The skilled labor shortage has been a headline for years now, and 2026 is no exception.
According to the AGC and Sage report, 82 percent of firms are having difficulty filling hourly craft positions, and 80 percent are struggling with salaried roles. Those are the highest numbers in the past three years. And 63 percent of firms still plan to grow their headcount, which means the competition for qualified workers is only going to intensify.
When your teams are stretched thin, every inefficient process costs you more. It costs you in time, in errors, and in the energy your people spend on work that could be automated or streamlined. Whether it's project accounting, approvals, payroll, or field reporting, the processes that still rely on manual entry are the ones most likely to slow your team down and introduce mistakes.
We've seen this firsthand with the contractors we work with. When firms invest in reducing the manual burden on their teams, they don't just save time. They create room for their people to focus on the work that actually moves projects forward.
AI Investment Is Accelerating, But the Foundation Matters
One of the most striking findings in this year's report is how quickly AI adoption is growing in construction.
Sixty-one percent of firms now say they're either using AI or planning to increase their investment in it, up from 44 percent just a year ago. That's a significant jump. Contractors are putting AI to work across administrative functions (45 percent), estimating (23 percent), design and preconstruction (20 percent), and recruiting and training (16 percent).
This isn't a trend that's going to slow down. But here's what we keep coming back to in our conversations with clients: AI is only as good as the data and systems underneath it.
If your financial data is scattered across disconnected tools, if your reporting processes are manual, if your accounting system wasn't built for the way construction actually works, then layering AI on top of that isn't going to solve the underlying problem. It's going to amplify the gaps.
The firms that are getting the most out of technology right now are the ones that invested in a solid cloud-based foundation first. Centralized data, connected workflows, clean reporting. That's the groundwork that makes everything else, including AI, actually useful.
What We Think This All Means
The 2026 outlook is complicated. Some segments are thriving, others are pulling back. The labor market is tight. Costs are unpredictable. Owners are cautious. And at the same time, the pace of technology adoption is accelerating.
For construction leaders, this is a moment to step back and honestly assess whether the systems behind your business are keeping up with the demands in front of you.
Can you see your financial performance clearly and in real time? Do you know which projects are making money and which ones aren't? Can your teams get what they need without chasing down spreadsheets or waiting on manual reports? Are you positioned to adopt new technology when it makes sense, or will outdated infrastructure hold you back?
These aren't hypothetical questions. They're the ones that separate the firms that navigate years like this successfully from the ones that spend the whole time reacting.
At Alliance Solutions Group, this is the work we do every day. We help construction businesses modernize the financial and operational systems that everything else depends on, from Sage Intacct Construction to connected solutions that support reporting, project visibility, and workflow efficiency. Our goal is to help contractors build a foundation that's strong enough for what's coming, not just what's here today.
If any of what you've read here hits close to home, we'd love to have a conversation.
The data referenced in this article comes from the AGC and Sage 2026 Construction Hiring and Business Outlook report. You can read the full report here.
