Summer 2026: U.S. Construction & Cement Outlook

Overview

The US cement market has been in a decline for three consecutive years. This translates into more than a 10 million metric ton decline since 2022. The volume loss has pushed clinker utilization rates lower, reduced reliance on imports, and prompted a moderation in cement and concrete pricing.

The principal reasons for this retreat have been elevated inflation's impact on interest rates and its erosion in the strength of public spending programs. These dual adverse impacts have constrained private and public spending and have been recently supplemented by a slowdown in job creation.

While some regional markets have been lifted by vibrant data center and other meg-project activity, these projects have not been enough on a national basis to offset the combined weakness in the construction market brought on by high interest rates, inflation, and adverse net operating conditions.

The Iran conflict introduces a new source of inflation via high oil prices into the outlook. For a construction outlook already dependent on declining long-term rates, these upside inflation risks are significant. Unfortunately, no clear path for an end to the war are apparent. This assessment leads to a critical new assumption contained in this forecast -- the continued hinderance of shipping through the Strait of Hormuz during the Trump Administration (2028).

According to various surveys of opinion, this "Stalemate" scenario is the most likely chance of occurrence. As a result of this assumption, the modest 2027 recovery that characterized the Spring Forecast is no longer part of the baseline scenario.

The Iran War Assumption

The War with Iran has gone on for six months. While the US has the conventional military strength to resolve the crisis, the integration of cheap, mass-produced drone technology has fundamentally altered the calculus of traditional military intervention, turning a conventional mismatch into an unacceptably expensive war of attrition.

Despite a temporary ceasefire that resulted in an increased flow of shipping through the Strait of Hormuz, the accord could not be sustained. With the structural failure of the accord, each side has hardened it position regarding the terms necessary for an ending of the war and a reopening of the Strait of Hormuz.

Furthermore, the conflict is no longer a localized affair. It has fractured into a decentralized, multi-front regional war. Iran-backed actors across Yemen, Iraq, and the Levant continue to threaten critical shipping lanes and global logistics independently of direct commands from Tehran. This diffusion of hostility means that a single, clean diplomatic agreement may be even more difficult to achieve.

Barring an unexpected domestic political collapse within Iran or a profound shift in American political will driven by the upcoming elections, the conflict has entered a frozen phase. Lacking an exit plan, the "Stalemate" assumption, lasting through the current administration's term, serves as our baseline scenario.

Near Term Economic Outlook

The US economic outlook is critically shaped by the continuation on the Iran War and the resulting limited flow of oil tankers through the Strait. This hinderance to shipping has resulted in a supply shortfall on global oil market that has driven up oil prices from $67 prior to the war, to nearly $81.50 currently -- a 21.5% increase. Oil prices infiltrate a wide variety of products and have prompted a revival in inflation from 2.4% prior to the war to 3.4% currently. Finally, this chain of disruption of shipping through the Strait of Hormuz impacts interest rates, prompting the mortgage rates, for example, to increase from 5.98% to 6.67% - nearly a 70-basis point increase in rates.

In combination, these factors have hindered growth in the private sector, namely consumption and investment spending. Consumers are finding it increasingly difficult to cope with elevated prices. Credit card debt increased by $21 billion in the second quarter and now nearly 13% of credit card debt is delinquent more than 90 days, compared to 7.6% prior to the war. While the lowest income strata are having the most difficulties in making ends meet in the context of elevated inflation, the persistence of inflation is now threatening the next higher income strata. This could result in a more meaningful drag on consumer spending than has materializes to date.

The combination of slowing consumer spending, is amplified by the potential slowdown in interest sensitive sectors under the weight of elevated interest rates. Combined, this has prompted economic growth to slow from 2.1% in the first quarter to 1.5% in the second quarter.

Things Worsen: Economic Outlook

The higher oil prices go, and the longer the disruption in shipping through the Strait of Hormuz continues, the worse conditions become for the US economy. Unfortunately, not only is a prolonged disruption expected to continue, but oil prices are expected to rise further -- amplifying the adverse conditions facing the US economy.

The disruption in the flow of oil supply though the Strait of Hormuz is estimated at 20.5 million barrels of oil per day (mbpd) out of a total world consumption estimated at 102.5 mbpd. While no supply relief can come from increased OPEC production, this shortfall can be partially offset by a series of supply offsets. These offsets include a release of 2.0 mbpd from strategic oil reserves, an increase in so-called "dark" tankers that secretly creep through the strait accounting for 2.0 mbpd, increase supply via land-based pipelines of 2.6 mbpd, and another 1.0 mbpd from non-OPEC suppliers. In addition, supply shortages and higher oil prices are expected to result in roughly 1.6 mbpd destruction in the demand for oil.

All totaled, these efforts reduce the 20.5 mbpd shortfall from the Hormuz shipping disruption to a deficit of 6.3 mbpd. That shortfall is responsible for pushing oil prices up $14.50 per barrel ($81.50 currently vs $67.00 prior to the war).

Unfortunately, the strategic oil reserves that cushion the impact of the supply disruption, are finite. Analysts expect the reserves will be exhausted by the fourth quarter -- just in time for the winter heating

season. The exhaustion of oil reserves adds the potential of a second leg up for oil prices -- beginning later this year.

If these reserves are depleted, oil prices could rise considerably. Estimates range from $95 per barrel to upwards of $150 per barrel. At elevated oil price levels, demand destruction will intensify and the rewards to increased supply from expensive sources will be elevated. As a result, this forecast opts for the low-end projected increase in oil prices, or $95 per barrel. Upside risk to oil prices, however, may exist.

In any case, inflationary pressures may intensify in the quarters ahead as even higher oil prices work their way through the economy. Given timing lags, higher oil prices translate into even higher inflation, which creates a higher hurdle for consumers to make ends meet and adds to the expected inflation premium imbedded in interest rates -- particularly long-term rates. Not only does this translate into slower real GDP growth later this year and into the first half of next year, but it also suggests that the conditions facing new private construction may worsen in the near term. Healthy order books generated in prior years, could begin to decay in the context of weaker "new" orders and cement consumption could continue its slide into 2027.

The Federal Reserve & Interest Rates

The new baseline scenario suggests continued weakening of the economy. Real GPD growth was estimated at 2.1% in the first quarter -- with very little of the adverse war impacts materializing. Second quarter estimates put real GDP growth at 1.4%. As much as half of that growth has been directly or indirectly tied to data center and AI investments. These are investments less sensitive to interest rate movement. That implies that growth in the "traditional" economic base has neared stall speed. Arguably, this slowing growth has shown up in job growth. Aside from consistent growth in health care workers and a bulge in hiring due to the World Cup, the labor market seems to have settled into a slower growth path. This slowdown is expected to persist, maybe worsen, during the next two quarters. This slowdown will probably not be characterized by high unemployment rates, as labor force participation and growth has also slowed.

The economic environment facing the Federal Reserve is one that likely reflects rising inflation and easing labor markets. During periods of rising inflation, the Fed typically favors raising the federal funds rate to cool demand in the economy and push down inflation pressures. During times of easing labor market conditions, the Fed typically favors lowering the federal funds rate to stimulate demand and hiring. Unfortunately, both conditions currently face the Fed -- leaving the direction of its future policy path uncertain.

The Federal Reserve has a dual mandate -- maintain price stability and strong labor markets. While high levels of inflation will be apparent in the data, slowing job growth is not expected to result in a significant increase in unemployment. Harsh immigration policies and accelerated rates of senior workers retiring has led to very modest increases in the labor force. As a result, slowing job creation is not expected to sound alarms via increases in the unemployment rate. Among the two mandates, inflation will likely absorb most of the Federal Reserve's attention and could suggest the next move is a rate hike.

Keep in mind, however, that accelerated and sustained inflation eventually becomes expected inflation and gets imbedded into long term interest rates. Higher inflationary expectations have already prompted an increase in long term rates. Mortgage rates, for example, were slightly below 6% prior to the war and now they stand near 6.7% - an increase without Fed action on interest rates. Even doing nothing, the market itself has adapted to curb inflationary pressures.

This all suggests that perhaps a policy of no action actually tightens monetary conditions. The market tightening, however, is carried out by the market -- not the Fed. Sitting on the sidelines and not engaging in active monetary policy actions, will slowly fight inflation.

As a result, the baseline forecast does not expect a change in the Federal Reserve's Federal Funds rate for the remainder of 2026. Furthermore, the dilemma of ongoing dual inflationary pressures and soft labor markets suggest this policy position will be maintained through 2027. Only after a clear path towards the 2% target inflation goal has been set, is the Federal Reserve expected to cut rates. That signal, however, does not materialize until 2028.

Just because the Federal Reserve sits on the sidelines, doesn't mean there are no changes in interest rates -- particularly at the long end of the loan spectrum. Inflation premiums and risk spreads will move and influence the direction of long-term interest rates. Arguably, actions by the Federal Reserve play a much smaller role in determining long-term rates than changes in the inflation and risk premiums. Furthermore, it is important to recognize that construction market conditions are heavily dependent on long-term loan rates such as 30-year mortgage rates and longer-term commercial loans. To this end, changes in inflation and lending risk play a more important role in determining the long-term interest rate than Federal Reserve policy decisions.

In an extended war environment, as assumed in the baseline forecast, inflation and lending risks play critical roles in determining the path of long-term interest rates. As a result of the inflationary push resulting from elevated oil prices and uncertainty regarding the policy actions, commercial rates are expected to act as upward pressures on long-term interest rates. Under this weight, economic growth will weaken -- partially offsetting some of these upward interest rate pressures.

"Traditional" Private Construction Activity

Within today's private construction sector there are segments that are highly sensitive to changes in interest rates and there are some sectors that are significantly less sensitive. Dynamic data center construction is less sensitive to changes in interest rates, and are discussed apart from "traditional" construction segments.

"Traditional" construction segments, such as residential, retail, office, hotels and manufacturing are sensitive to interest rate changes. They are also sensitive to non-interest rate factors. For private construction, income conditions and credit access play important roles in underlying demand conditions. Single family construction, for example, is driven by not only the home prices and financing costs, but also by the income levels that support the purchase of the new homes as well as lenders willingness to extend credit. Similar factors operate in many nonresidential sectors. Income levels, however, are measured in terms of occupancy and leasing rates, or expected return on investment (ROI).

In the context of an inflationary, slow growth economic environment, private sector construction typically performs poorly. Add-in atop this a track record of political uncertainty, could force banks to become more cautious in lending - making credit access more difficult. These factors, taken together, suggest private sector construction is unlikely to recover this year or next.

Under the assumptions regarding the stalemate of the Iran war, single family construction is expected to remain in a saddle position, neither rising or falling significantly from today's soft conditions through 2027. Mortgage rates are expected to remain near 6.5%, home prices are not expected to increase much, and given the resulting continuation of the crisis in home affordability, a modest tilt toward townhomes and condominium purchases (multifamily) are expected to materialize, and starts are expected to soften from weak 2025 levels.

Nonresidential and the "Maturity" Wall

Similar dynamics face much of the traditional nonresidential segments, particularly the office, retail, and manufacturing segments. An important adverse wrinkle, however, confronts these nonresidential sectors called the commercial real estate "maturity wall". In total commercial real estate loans are valued at $5 trillion. Of this, roughly $1.5 trillion matures this year or next. Furthermore, $650 billion of 5 year to 10-year loans that were taken out when commercial rates were much lower - and hold an average interest rate of less than 4.5%. These loans must be refinanced -- but at rates now averaging 6% to 7.5% depending on the property type.

This represents a problem. Consider the following example. A typical stable commercial property generating $1 million in net operating income can easily support a $13.6 million loan at yesterday's 4.25% rate. At today's market rate of 6.25%, that exact same income stream can only support roughly $10.7 million in debt---resulting in an immediate 21% capital shortfall that the owner must pay out-of-pocket just to renew their mortgage. If a developer has to burn $10 million of cash just to pay down and save an existing building they already own, that is $10 million they cannot use as a down payment to break ground on a new nonresidential construction project.

The condition is made worse by the existence of another $200 billion in floating rate bridge loans to commercial real estate. These short-term loans were undertaken to purchase, repair and add value to the property, and then refinance at lower rates. When rates rise, in the context of a short maturity, the impact is immediate.

While data center construction dominates the nonresidential headlines, it is important to note that the nonresidential sector impacted by the "maturity wall" (office, retail, manufacturing and hospitality) consumed more than 5 times the amount consumed by data centers. This issue, therefore, represents a serious threat to nonresidential cement consumption.

The "Maturity Wall" raises the potential of loan default among commercial borrowers. Loan defaults, in turn, undermines banks' financial security. In this context, banks take on a much more conservative approach toward commercial real estate lending -- to the detriment of commercial construction. The potential of this materializing to a significant level is dependent on the strength of the economy. A softer economy increases the chances of loan default. This forecast does not include the full potential adverse impact arising from the "maturity wall". As a result, downside risk should be attached to the "traditional" nonresidential sector.

Data Center Outlook

In the middle of a difficult period for housing and traditional nonresidential building, one sector has emerged as a force powerful enough to alter growth in regional cement markets. Growth in the construction of data centers in recent years has been extremely strong and does not appear to be slowing down anytime soon. Recent spending data from US Census shows first quarter growth running 33% above 2025's robust levels. Indeed, growth is so strong that construction worker shortages are threatening to slow down the construction of facilities and at the same time prolong its growth.

At its foundation, the driver behind data center construction is profit. As long as developers building data centers today earn very large returns on their investments -- construction will remain robust. Chasing the certainty of robust returns, capital flows into further investments without hesitation. Currently, the demand for AI computing capacity is vast, the supply of facilities to house it is constrained. This tends to keep the profitability in building data center elevated -- and ensures its near term growth momentum.

In 2025, data centers consumed an estimated 2.0 million metric tons of cement -- far more than other industry estimates. Our estimates on data center cement consumption assesses the inventory of projects under construction, the planned completion dates, the stage of production (cement and concrete consumption is greatest in early stages of construction), inclusion of infrastructure, plant sizes, and carefully estimated cement intensities by tier of construction (large 4 GW campuses versus edge data centers). We make sure that we measure only construction activity and weed out expensive equipment spending that is often included in plant spending (70%) estimates (if this is not undertaken, cement intensities will underestimate cement consumption).

The near-term outlook for data center construction is straightforward: robust growth continues. The pipeline of announced projects is deep, the capital commitments are made, and the construction lags involved in large campus development mean that activity already in motion will continue generating cement demand for years regardless of what happens to the investment climate. While "Not-In-My-Back-Yard" (NIMBY) movements will slow construction, overall, the momentum is expected to remain robust.

The forces that will eventually slow data center construction are not coming from outside the boom. They are expected to be created by the boom itself. Every new data center built partially erodes computing prices and makes energy more expensive for the next one. Every new campus started makes skilled labor harder to find for the one after it. The boom is quietly building its own ceiling. These forces will take time to build and are likely to reveal themselves on the marketplace beyond this forecast horizon. Strong growth in data center construction spending, as a result, is expected to continue through the end of this forecast horizon before meaningful deceleration sets in.

Public Construction & IIJA's Replacement

Public construction accounts for 45% of total cement consumption. Within the public construction sector, highways, streets and roadways accounts for more than two thirds of this cement consumption. This construction is funded at the local, state and federal levels of government. Nearly half of this funding is accrued to federal initiatives. During the past five years, this funding has been dominated by a five-year, $1.2 trillion federal investment in America's physical infrastructure including roads, bridges, transit, rail, water, broadband, energy, airports, and ports that was enacted November 2021. That program was called the Infrastructure, Investment and Jobs Act (IIJA).

The IIJA expires September 30, 2026. While the House Committee on Transportation reached agreement on a replacement of IIJA, it never reached the floor of the House for a full vote. The Senate has no companion legislation. Given the dim prospects of having a replacement bill before IIJA's expiration, both houses of Congress have proposed a continuing resolution (December 4 House, December 11 Senate).

Given the elections, a divided post-election Congress probably has no appetite for hard infrastructure votes in a 3-week lame-duck window. It is unlikely a new bill will be will be reached at that time. This suggests a second continuing resolution (CR) will likely materialize and place the onus of a replacement program will fall on the next Congress. The second CR is assumed to be long enough to give the new Congress time to get accustomed and resolve the issues surrounding the IIJA replacement. A replacement bill is assumed to be put in place September 30, 2027 -- one year after the expiration of IIJA. Historical precedent confirms this pattern as surface transportation bills have required multiple extensions in every reauthorization cycle since 1991.

What Public Highway Spending Looks Like Under the CR

The CR will dominate public construction spending during the remainder of 2026 and through most of 2027. A CR continues Highway Trust Fund contract authority, and formula programs for highways, bridges, transit, and safety. It does not fund competitive grants for major infrastructure, freight and bridge investments (Division J). These programs, totaling $118 billion are frozen and by itself, would result in a decrease in overall program spending.

Some point out that there are unspent, obligated monies from IIJA that might be used to cushion the decrease in overall spending during the year ahead. The $92B obligated pipeline and $31B in state-apportioned formula funds provide a legitimate buffer through 2027. States may draw on unobligated formula reserves to partially offset the competitive grant freeze. This tact, however, can only be used for projects that have already advanced through permitting and design. Furthermore, it is likely states will not apportion all these funds during fiscal 2027. In net, the CR results in a modest decline in highway spending.

The CR will also impact the composition of spending. Facing funding uncertainty under a CR, state DOT's will likely shift their available formula dollars toward lower-risk, faster-executing work: pavement preservation, minor bridge repair, safety improvements. These are lower cement-intensity activities. In addition to the expected spending declines, the reduction in cement intensities will add to the overall decline in cement consumption tied to federal spending.

As a result, real highway spending is expected to decline from soft 2026 levels during 2027. This spending decline will be characterized by a weakening in cement intensities -- adding to the sector's softness.

Beyond the CR

The new congress elected in November will likely decide the size and composition of spending for IIJA's replacement. If Democrats take the house the replacement bill will likely be larger than the Republican bill and the composition emphasize passenger and transit rail more than a Republican bill. Republican concerns about federal government debt will likely be smaller and emphasize highway and bridge more than a Democrat bill.

All construction forecasts beyond 2027 require a base assumption regarding the size and composition of the bill that replaces IIJA. Our assumption lays out credible spending volumes and composition of spending under a Republican, Democrat, or mixed election outcome. Probabilities are attached to each outcome based on current polls in each race. The weighted outcome of serves as our funding assumptions during 2028-2033.

This process yields a IIJA replacement estimate at $595 billion. Compared to IIJA's spending level of $580 billion, this represents a 2.6% increase in nominal spending. In real terms, accounting for inflation, it represents a 14% decline. While IIJA's replacement will boost spending beginning in 2028, the initial gains are expected to be modest. As with ARRA and IIJA, expect considerable lags between the time the new spending bill is enacted and the time that the increased pouring of concrete begins.

Forecast Summary

A broad-based construction recovery will not materialize until interest rates ease. An easement in interest rates is contingent on a reduction in inflation. The reduced flow of shipping through the Strait of Hormuz pushes up oil prices and stimulates inflation and hence interest rates. The resumption of hostilities and the perceived lack of an exit strategy by either constituent suggests a prolonged period of elevated inflation and interest rates -- to the detriment of economic growth and construction activity. While heightened interest rates adversely impact private construction, particular weakness could materialize in some nonresidential construction sectors that must refinance existing 10 year and bridge loans.

To add further near-term distress to the near-term outlook the powerful public construction funding program, IIJA will likely lapse this year and a divided congress may not offer a replacement until 2027. In the meantime, a continuing resolution (CR) is expected to be in-place. Life under a CR insures the continued spending on existing projects, but many state DOT's will likely shy away from starting any new longer-term projects due to uncertainty regarding long term funding. That implies an emphasis of spending on lower cement intensive maintenance projects.

While these distressed market segments dictate a sour outlook for 2026 and 2027, it may also call into question 2028's growth prospects. In contrast, the spectacular growth in data center construction activity is expected to continue despite the NIMBY movement.

It's easy, right now, to be pessimistic about the near-term construction outlook. Let's look beyond the Iran conflict. With enhanced flow of shipping traffic through the Strait of Hormuz, oil prices will retreat. Supply chains will heal and inflationary pressures will ease. With the retreat in inflation, interest rates will inch down. This, coupled with an economy that maintains strong footing, particularly in the context of a lower interest rate environment, could position construction activity for a sustained period of strong growth.

In the context of lower interest rates, some pent-up demand in housing will be released. With economic strengthening traditional, cyclical nonresidential construction will recover. These gains will be amplified by continued strength in data center construction. Combined these forces will move the nonresidential sector from a net drag to a strong net supporter of growth in construction. And the nonresidential story sweetens when you factor in the construction of energy facilities that are required to support population and data center energy requirements. Finally, given time IIJA's replacement will materialize in the marketplace adding to an overall longer-term picture of construction.

While better days lay ahead, the near-term outlook continues to reflect adversity.