A recent regional survey highlights a challenging but nuanced outlook for the construction sector, marked by declining project backlogs, tighter competition for fewer opportunities and persistent cost pressures — despite some isolated signs of resilience.

The survey presented by The Federal Reserve Bank of Minneapolis received over 250 responses from individuals representing all areas of the construction sector across the Midwest region. 

According to the survey results, approximately 58% of construction firms reported a decrease in their project backlogs over the past six months; a notable drop compared to the same period last year. 

“It may indicate that many firms will be struggling to maintain a steady flow of projects,” said Erick Gracia Luna, regional outreach director for the Minneapolis Fed. 

While 60% of respondents reported stable or increased project completions, a positive signal, there are growing concerns that these backlogs are not being replenished with new projects.

Compounding the challenge is the cost environment. While the pace of price increases for construction inputs has moderated since the intense spikes of 2021–2022, costs continue to rise. Notably, respondents cited higher prices for essential materials like steel, concrete and aluminum, as well as increased shipping expenses. Additionally, wage growth, though decelerating, remains upward as companies continue to pay more to attract and retain skilled workers.

However, firms are finding it difficult to pass these rising costs onto clients. A comparatively smaller share of respondents reported increasing prices for customers, highlighting a profitability squeeze. 

“Many companies are having to absorb additional costs, which can put significant pressure on their profit margins,” explained Garcia Luna.

The survey also pointed to a shift in sentiment from the previous year. In 2024, optimism about easing interest rates and improved conditions buoyed activity. In 2025, however, that optimism has cooled as many clients adopt a wait-and-see approach, delaying new projects in anticipation of more favorable financing and cost conditions later in the year.

“Despite the challenges, there’s still strong demand and opportunity,” concluded Garcia Luna. “People are committed to making it work.”