Builders face economic headwinds

TRAVERSE CITY — The region’s building and construction sector heads into 2026 facing a heavy dose of economic uncertainty including inflation, higher borrowing costs, labor shortages — and plenty of political discord.

That was the message at Wednesday’s annual Economic Forecast Breakfast presented by the Builders Exchange of Northwest Michigan. The event, which featured Anirban Basu who’s the chief economist for the national Associated Builders & Contractors organization, drew more than 140 BX members and local officials to the Delamar Hotel in Traverse City.

Basu, who speaks at events and conferences around the country, said he often asks Uber and Lyft drivers who transport him around about their livelihoods and concerns. He’s heard a consistent recent theme from his inquiries about rising prices and ongoing inflation.

“The No. 1 thing they complain about is that they can’t keep up with inflation — these price escalations,” Basu said.

Basu said the Federal Reserve has historically set a target rate of 2% annually for the country’s inflation rate to maintain a steady economy. But that hasn’t been the reality in recent years as inflation started to accelerate in the spring of 2020 during the early stages of the COVID-19 pandemic.

“We have not been at the target rate of inflation in our country for nearly five years... we remained mired in inflationary times,” Basu said. “We’re nowhere close to that Federal Reserve 2% target.”

Inflation is a specific concern for the construction sector because it’s resulting in higher material costs for builders, and higher construction and borrowing costs for businesses, consumers and governmental entities that are initiating new construction and infrastructure projects. Inflation has increased an estimated 27 percent over the past five years, Basu said, which has also driven up interest rates to counter higher consumer prices.

“This has many implications, including for contractors of all types,” Basu said. “Interest rates really matter to this industry, whether it’s related to project financing costs, for project owners ... to equipment purchasing costs or other forms of borrowing to finance operations.”

Tariffs on imported goods implemented by the Trump administration are also impacting inflation trends on key construction goods including steel, aluminum and copper, he said. Increased immigration enforcement by the administration is also impacting the size of the national labor force creating fewer workers in agriculture, food distribution and processing, landscaping, day care — and construction.

“There’s further upward pressure on prices ... we have seen again some recent re-acceleration of inflation in the data,” Basu said.

There were some silver linings in Basu’s 70-minute presentation. He pointed to solid job growth in some major metropolitan areas, specifically in regions were the general population is growing including major cities in Texas, Florida and Arizona.

“Population growth is where the job growth has been,” he said.

Consumer spending also remains strong, he said, pointing to solid Black Friday and Cyber Monday spending by consumers which showed increases from a year ago. But he also cautioned that some of that is related to an estimated $2.4 trillion drawdown in housing savings since 2021, and escalating national credit card debt currently estimated at around $1.23 trillion. Household wealth is also on the upswing — estimated at some $167.3 trillion this year — but most of that growth is among the country’s top wage earners.

Economic growth is also solid in sectors related to artificial intelligence, he said, and the proliferation of data centers around the country. AI-related spending alone is expected to add 1.5% to the nation’s economic output next year, Basu said.

Despite the widespread economic challenges concerns, Basu said the Grand Traverse region is better positioned than many areas of the country to deal with the uncertainty. The region’s tax base continues to grow, it’s still gaining population compared to other areas in the Midwest, and it continues to draw significant investment from consumers and the construction sector.

“Traverse City is not a microcosm of the country,” he said.

Basu saved some of his sharpest criticism for the national leadership in Washington — including Congressional members — for problems including the spiraling national debt currently estimated at $38 trillion, and the recent record-long federal government shutdown which he said shook the confidence of U.S. citizens and other countries around the globe.

“The talent pool is getting worse,” Basu said of Congress.

BX Executive Director Lisa Radtke said local builders are already seeing some of the impacts of the economic challenges cited by Basu, specifically in terms of rising prices for construction materials. Bid bonds — which provide a guarantee to project owners ensuring that bidders will complete the work — for public sector projects have increased to 10% and even 20% of the project cost — compared to a 5% bid bond amount which she said has been an industry standard for decades.

“I think people who are putting these projects out there realize that these prices are not stable,” Radtke said. “There’s concern that these bidders can’t hold these prices very long.”

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