There is something magical about the change in the calendar, or so it would seem given all the attention this transition gets. To be honest, the economy really doesn’t work that way, and the issues from one year tend to carry forward into the next. That said, shifts are happening as politics take center stage in an election year. What do we expect in 2026? Four economic concerns have preoccupied analysts for the last year (and longer) and will doubtless be top of the agenda in 2026, especially for contractors. To nobody’s surprise, these are inflation, GDP growth, trade and tariff policies, and employment. And all are related.

Generally speaking, inflation is a disease of growth. It is what happens when demand exceeds supply. That creates scarcity, and producers tend to react by hiking prices to control that demand. There are also artificial shortages created by factors such as supply chain breakdowns, tariff policies and various interventions. Right now, most of the inflation surge can be attributed to these artificial inputs, but there is a mounting issue of labor costs. 

Inflation

The recent slide in inflation has been attributed to lower energy costs. There has been some reduction in the inflation rate at the producer price and consumer levels, but there are major exceptions. The price of oil has been falling and has been hovering around $60/barrel. That is fully $10 to $15 less than was expected. Unfortunately, other prices have not followed that pattern. Food prices are up by another 10%, and there have been large increases in vehicles, single-family homes and more. 

Copper, steel, aluminum and other commodity prices have been high. There are also issues around how inflation is measured. The “core” rate excludes the costs of food and fuel, and some have even tried to assert that inflation is lower if you don’t count housing costs. Expectations vary, but many analysts assert that a rate between 3% and 3.5% is likely, which is about a point higher than right now. If one isolates the costs of commodities, the inflation rate is closing in on 5% gains.

GDP growth

The second issue is growth. Last year, the gains in GDP exceeded most every prediction. Growth in the third quarter was above 4.05%, and Q4 only slowed a little. The expectation is that 2026 will see GDP numbers closer to the 20-year average of 2.5%, but there could be surprises to the upside. Consumer spending will continue to be the major contributor, but all eyes will be on nonresidential construction, as that was a major factor last year (over 18% of total GDP). The emphasis on data centers and energy development will drive growth. 

The increase in data center projects is nearly exponential, and that means increased price pressure. Combine a major surge in demand with shortages and barriers, and there will be inflation. Some major growth boosters are set to make an appearance in the coming months. The One Big Beautiful Bill legislation passed last year was designed to promote growth in the short term by offering a generous tax deduction for projects started in 2025 and completed by 2030. To get the deduction, the project must comply with this timeline, and this set off a scramble among construction companies. Hundreds of projects have been announced. Every state saw some of this development, and that means fierce competition for commodities, materials and labor. All of that also feeds inflation.

Trade and tariffs

It is possible that tariffs will be relaxed, and that could bring more growth from trade. The United States relies on selling high-value manufacturing to the world, and the tariff decisions have been interfering with this market. A major complication is that economic concerns are not the only motivator. There are many reasons to impose tariffs, and often there are unintended consequences.

Employment

Employment is very complicated. The labor shortage grows more acute by the month as more baby boomers retire. At this point, there are an additional 16,000 to 19,000 people receiving Social Security every day. Finding replacements has become very difficult. The issue is made more complex by the need to find qualified people. Those who lack the needed skills and education are struggling to find work, and those with these skills are in a position to demand higher wages. That drives inflation at the labor level. 

ECs need people who know new technology and how the job has been done for decades. This is why losing the older workforce is so concerning. Ideally, the experienced workers pass on their knowledge, but, in many cases the new worker only gets hired when the older worker has elected to retire. You still hear some economists talk about the “Great Recession of 2030,” but in all candor, it is nearly impossible to predict that far out. The real motivation for this assertion is that  2030 will be the year that every single boomer will have reached retirement age. Replacing more than 72 million workers will not be simple.

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