Commercial construction is showing signs of renewed momentum, with contractors reporting stronger pipelines and record-high planning activity. But behind the headline growth, rising costs, tariff uncertainty, and stubbornly thin margins are tempering the industry’s optimism.

Project Stress Eases For Now

In July, the Project Stress Index, which tracks stalled, abandoned, or delayed jobs, fell 24.3% from June, according to ConstructConnect. Abandonments dropped by more than a third, while bid delays and on-hold projects also declined. Private-sector stress eased most sharply, with bid delays nearing historic lows.

Yet abandonments in both public and private projects remain near historic highs, and overall project stress sits 14% above its 2021 baseline. “The volatile economic environment continues to weigh on the construction market,” said Devin Bell, associate economist at ConstructConnect.

Planning Activity Hits Record High

Even with caution in the air, owners and developers are advancing more projects. The Dodge Momentum Index, which measures nonresidential projects entering planning, soared 20.8% in July, which is the highest reading on record. Data centers, warehouses, healthcare facilities, and public-sector projects led the charge. In total, 47 projects worth $100 million or more entered planning.

“After months of wait-and-see due to tariff uncertainty, owners and developers have begun to move forward with projects and assumed higher costs for them,” said Sarah Martin, associate director of forecasting at Dodge Construction Network.

Backlogs Strengthen but Confidence Slips

Contractor backlogs also ticked up. The Associated Builders and Contractors’ Construction Backlog Indicator hit 8.8 months in July, up from 8.4 months a year ago. Infrastructure and public works remain especially strong, fueled in part by the data center boom. One in eight ABC members is currently working on a data center project.

Still, contractor confidence in sales and profit margins fell last month. More than 80% of ABC members reported receiving notices of higher material prices, and fewer than 2% expect significant profit margin growth in the next six months. This is the lowest share since late 2024.

“Rising construction costs and economic uncertainty are already causing some owners to put projects on hold,” said Ken Simonson, chief economist at the Associated General Contractors of America.

Contractors Walk a Fine Line

For many contractors, the work is there but at tighter margins. Some are pressing ahead thanks to strong public-sector backlogs and infrastructure spending, while others remain wary of taking on new jobs that may be underpriced once material or financing costs spike.

With planning activity at all-time highs, the second half of 2025 could bring a robust flow of new work. But unless costs stabilize, you may find yourself busier without being more profitable.

Still, there are ways to protect your margins in this environment:

• Invest in labor-saving equipment and technology to help crews do more with fewer people.
• Track inventory closely to avoid overstocking and wasted capital.
• Negotiate better payment terms with vendors to keep cash flow flexible.
• Source materials locally where possible to reduce exposure to tariffs and shipping delays.
• Maintain relationships with multiple lenders and compare financing costs to expected returns before committing to new purchases or expansion.

Strategic moves like these can help you turn today’s challenging market into an opportunity for leaner, more profitable growth.