Construction materials economist Ed Sullivan released his 2026 Construction, Cement and Concrete Outlook as the cement market marks three consecutive years in decline.
Sullivan noted that for now, nothing on the near-term horizon seems to point to a significant improvement in demand conditions. The new year is expected to start much as it finished: High interest rates will continue to bridle private construction activity and inflation will continue to erode public funding.
While the dynamic data center construction sector is expected to post another year of strength, Sullivan said it is important to keep in mind that it accounts for less than 2% of total cement consumption. By itself, it will not be a strong national driver of growth.
The economy has posted strong growth during the past two quarters and may continue to surprise on the upside throughout 2026. This strength has been brought about by resilient consumer spending, a narrowing trade deficit and signs of an improvement in productivity that is increasingly supported by AI-related investments.
While an argument can be made that tariff-related inflation may simply be delayed, the near-term inflation threat appears diminished in the context of lower oil prices. This backdrop reduces upside inflation risk and increases the likelihood that the Federal Reserve can pursue a more aggressive easing cycle.
This economic growth momentum has been characterized by an easing in labor market conditions. The labor market is not expected to contract, but it is expected to grow much more slowly and the unemployment rate will likely tick up through the first half of the year. This cooling will contribute to the improvement in inflationary expectations and may further heighten the likelihood of a more aggressive monetary policy easing in 2026. Unfortunately, a softer labor market will also undermine the recoveries in the residential and nonresidential sectors.
Several factors could create the conditions for a construction recovery beginning in 2026. New depreciation provisions contained in the Big Beautiful Bill may provide incremental support to nonresidential investment. At the same time, a streamlining of federal and state regulatory requirements could accelerate the timing of public-sector project delivery.
Easing tariff-related inflation concerns could place downward pressure on long-term interest rates and, potentially, coincide with a transition in Federal Reserve leadership toward a more accommodative policy stance. Finally, a new, more powerful replacement of the Infrastructure Investment and Jobs Act (IIJA) could materialize in the fall.
While each of these factors could happen, the extent to which long-term interest rates decline and the ultimate scale of funding in a potential IIJA replacement hold the greatest potential to support stronger cement and concrete consumption over time.
Unfortunately, timing works against either of these factors playing a meaningful positive role in 2026 cement volumes. Significant lags exist between the policy action and the ultimate impact on construction activity. Neither will materialize during the first half of the year. That implies that conditions that prevailed during late 2025 will likely persist during the first half of 2026. Interest rates will remain high and choke private construction activity and inflation will continue to erode the spending power of public construction.
Over time, these policy changes will impact construction activity. The market will first stabilize, then enter into a growth mode – but the bulk of that growth is not expected to materialize until 2027.
It is difficult to envision a meaningful improvement in cement and concrete demand this year. While that does not necessarily imply a fourth consecutive year of decline, it suggests that 2026 may represent a saddle point – neither declining nor improving to any meaningful degree.
The primary 2026 risk to this outlook for construction activity centers on inflation. If inflation stops improving, a reduction in short- and long-term interest rates will not materialize. Without that, there will be no improvement in the private sectors of the construction market. Alternatively, a significant and sustained improvement in inflation signals the potential of a more rapid decline in interest rates and an earlier recovery in construction markets than is currently anticipated.
The Sullivan Report delivers subscription-based economic forecasts, news, and market updates tailored to the cement, concrete, construction, and aggregates industries. Its flagship publication, the Cement Outlook, is released three times a year and features five-year forecast projections, expert analysis, and actionable insights to support informed decision-making and long-term strategic planning amid an evolving economic landscape. Guided by award-winning economist Ed Sullivan, The Sullivan Report also offers keynote presentations and customized forecasting services for organizations and regions seeking deeper, data-driven market intelligence. For more information, visit TheSullivanReport.com, or email [email protected].
