November 24, 2025

Hi, everyone. My name is Taylor St. Germain with ITR Economics. Thanks for joining me on this episode of TrendsTalk. We at ITR, your apolitical and unbiased source of economic intelligence. And today I wanted to cover commercial construction. I’m actually here in the Dallas-Fort Worth area giving a presentation on the industry today. So I thought it’s a great time to provide you all with an update.

If you remember back in July, I highlighted that US Private Nonresidential Construction, our benchmark for the commercial construction industry, transitioned to a recession, meaning that annual growth rate, 12/12 growth rate, dropped below zero. That is still the case today. We still see that data series that annual growth rate trending below zero, but we have some good news in some of our forward-looking leading indicators. As you know, we look at a number of leading indicators when it comes to forecasting that 12 to 18 month future. And those leading indicators are suggesting that this period of negativity we’re in for commercial construction is going to be one that’s temporary. And by the time we’re in the second half of 2026, we’re really going to start to see some of that momentum build in the commercial construction sector.

So I wanted to provide all of you folks in that industry some good news. So again, let me just detail where we’re at and what leading indicators I’m looking at that highlight as we move into the second half of next year there’s better times ahead. So again, the data series I reference is US Private Nonresidential Construction that comes from the US Census Bureau. And the annual growth rate as we sit here today is down 3.4%. So that is a minus 3.4%. But our forecast for this industry suggests that we very quickly into the first half of next year transition to the recovery phase of the cycle and we see some of that momentum build. Now, again, I want to remind you all that when we say the recovery phase of the cycle, that means the growth rate getting less negative. I’m not saying we’ll be in the positive by early next year, but we do expect the growth rate to surpass the low point and at least start to get less negative.

It’s not until the second half of ’26 where we see that growth rate for the commercial construction industry turning positive again. And one of the leading indicators that suggests that that momentum will build throughout next year is the construction backlog indicator that I track from the associated builders and contractors. What this indicator, of course, is looking at is the health of the backlogs for the different commercial contractors in our country. And it is a seven-month leading indicator to non-residential construction. That backlog indicator, after being negative really for the better part of the last 12 months, has recently transitioned to accelerating growth. Now, again, that doesn’t mean much for us until we get into the second half of next year, but it’s encouraging to see that the commercial contractors are building up some of these backlogs again. Again, it highlights that this downturn we’re in for commercial construction is just a mild single digit downturn. And by the second half of next year, the backlog indicator is saying times are going to get better.

Now, another indicator we track, and it’s one that myself and many of our colleagues discuss, is the Architecture Billings Index. We love the Architecture Billings Index because it has a remarkable correlation to commercial construction, and it provides us with a 16-month lead time. Anytime we can find these indicators with great correlations with longer than a year lead time into the future, at least makes us happy as forecasters, I guess is the way I’ll put it. But when we look at the Architecture Billings Index on a 12/12, a annual growth rate, and we get that 16-month lead time, we have finally seen the Architecture Billings Index turn positive as well. So we’re getting this upward momentum in a number of these leading indicators. Does that mean in the first quarter commercial construction is going to be positive? No, it doesn’t. These indicators are all pointing to upside in the second half of next year. But I wanted to provide the commercial construction industry with some encouraging news, which is this mild downturn that we’re in is one that we expect to be relatively short-lived, relatively mild. And by the time we’re in second half of ’26 and certainly ’27 and into ’28, we are forecasting some significant growth.

So I encourage those folks, yes, we still have some challenges here through the first half of next year. By the second half of ’26, we need to be transitioning to that growth perspective and ready for that growth that will come in the second half of this decade. I hope you found this information helpful. Of course, we love the commercial construction industry. Many of our colleagues, friends, clients in that industry, let us know how we can help. Head over to our ITR Trends report. We have a number of these commercial construction series that we forecast on a regular basis.

Thanks for joining me today. Please like and subscribe to TrendsTalk wherever you listen to your podcast. And I look forward to seeing you all in the next one. Thanks so much. Take care for now.