If 2026 was supposed to be a welcome respite, a much-needed calming breath, after the head-spinning insanity of 2025, it doesn’t seem like the new year got the message. What was expected to be a year of reduced volatility, improved trade certainty and decreased geopolitical tensions is starting as anything but.
Yet, after applying what we learned from the 2025 tumult, we still find value in asking the question, what will the remainder of 2026 bring? We’ll celebrate our country’s semiquincentennial, of course, but we also must prepare for midterm elections that might drastically change the power dynamic in Washington, all while the world navigates the increasingly volatile global tension and conflict.
This means it’s time we once again turn to our friend Keith Prather, managing partner and co-founder of Armada Corporate Intelligence, an experienced economist who stays up-to-date on domestic and global economic outlooks, geopolitical risk, supply chain issues, raw material supply, environmental impacts on business operations, and so much more. We asked Keith for his forecast on the year ahead and how we might all get prepared.
As we enter Trump’s second year, the market seems to be tethered to the latest whims of the administration. Do you see that continuing?
Wall Street analysts are certainly turning more toward President Trump and being swayed by the “news of the day” while they appear to push traditional economic fundamentals to the background. Those fundamentals still matter, of course, but actions by the administration can certainly “trump” financial outlooks very quickly (especially with his on-again, off-again tariff policy). Therefore, it’s important to look at the remainder of the year and try to blend hints of economic realism with the president’s agenda (and the uncertainty that seems to come with it.)
The global unease only seems to be escalating this year. How will we see that reflected domestically in 2026?
Obviously, history has shown the U.S. economy tends to perform better when volatility and uncertainty are reduced. The volatility being created this year could force many business leaders into taking a conservative approach to investment, spending, and hiring. Tariffs of 25% being imposed against any country trading with Iran, for example, only intensifies this risk. And while a tentative agreement on Greenland may have sidelined tariffs against European NATO members for the moment, it’s obvious the president intends to use tariffs as an ongoing negotiating tool. Companies will be forced to plan contingencies in the event another situation develops and tariffs once again create intense supply chain pressure.
Economic volatility and geopolitical tension can typically be measured in the U.S. Treasury market. When yield rates on the 10-year Treasury Note are moving up, volatility and uncertainty are building. Early in January, the 10-Year Treasury Note moved the wrong direction, inching up to 4.22% (mortgage rates typically add 1.7 to 2 points on top of its yield rate). Bond traders typically dislike deficits, inflation, and geopolitical uncertainty. Only clever bond auction strategies by the U.S. Treasury helped keep treasury rates down. All other factors were seemingly pressing upward on yield rates.
Speaking of tariffs, how will they continue to play a role?
Tariffs are still pushing manufacturing reshoring. Estimates suggest that more than $5 trillion in additional spending is “allocated” to the U.S. with the administration touting it could be north of $18 trillion. For perspective, total U.S. manufacturing construction activity was $222 billion in 2025, down slightly from $235 billion in 2024. However, this is more than four times the volume of spending from prior to the pandemic.
What about specific industries here at home? What do you predict for manufacturing?
The tax bill and its 100% bonus depreciation benefit extension is expected to drive a tremendous amount of spending in nonresidential construction sectors over the 2026-2027 period. With the average nonresidential industrial project taking three to five years to complete – and with the deadlines for using this tax benefit before the end of 2030 (facilities must be moved into and must be in active use) – many project managers realize they need “shovels in dirt” sometime in 2026 or 2027. This will be a key driver of manufacturing construction activity and subsequent power generation demand.
Most forecasts for manufacturing construction remain conservative, at less than 3% for 2026. But this seems low given the commitments for foreign direct investment and for building new domestic capacity by U.S. businesses. Given the wide range of possibilities here, it’s difficult to put a real estimate on how much spending will accelerate.
What about other types of construction?
There will be pockets of growth within nonresidential construction with or without the bonus depreciation benefits. Data centers, power generation, manufacturing, cold chain warehousing, distribution facilities, and health care spending (primarily ambulatory facilities and large hospital system expansions) will likely capture high single-digit and double-digit growth rates in 2026.
Data center and power generation construction activity alone will generate more than $215 billion in activity, growing at a combined rate of 9.6% in 2026. Combined, they’ll also collectively account for nearly 10% of all U.S. construction spending in 2026.
Moderate institutional construction – primarily in higher education aimed at retraining, lab facilities to teach skilled trades, advanced AI engineering labs, advanced high-tech health care training facilities, and flexible classroom spaces – will drive modest (but sporadic) growth across various regional markets. States with strong tax income and budget surpluses will have more to devote to public institutions for build-out of these expanded facilities.
Residential housing is always a key indicator of economic health; how’s that sector looking?
That will also be mixed and will depend largely on geographic location. Sunbelt states should continue to see an influx of population as people follow corporations that relocate. Absorption of some of the overbuilding that took place in Texas, Florida, the Carolinas, Arizona, and a few other spots will likely take place in the first half of 2026, setting up a much more aggressive building scenario for the second half of the year in those markets. And if the U.S. Treasury can get bond rates lowered, that will also serve as a catalyst for rapid growth.
The National Association of Realtors is forecasting year-over-year growth of 5% for new construction in 2026 and nearly 14% for existing home sales. Multi-family growth rates will be more modest, however. Overbuilding from 2025 will still be a factor in 2026, and most estimates have the national market flat to just slightly growing at 1 to 2%. But again, some markets will see stronger demand due to higher volumes of inbound domestic migration.
If we zoom out, what are you seeing for the overall economic picture?
Both the administration and the private sector are optimistic about the remainder of 2026. Even the most conservative forecasters are changing their outlooks and have started to increase their forecasts. The Federal Reserve meaningfully improved its outlook, raising its December forecast for 2026 GDP to 2.3% from 1.8%. This improvement reflects multiple tailwinds: the stimulative effects of tax policy changes, regulatory easing, resilient consumer spending, healthy equity market performance, strong pockets of nonresidential construction, and gradual moderation in inflation.
Small-business surveys in December suggested that small business optimism, investment, and hiring picked up at the end of the year, and most firms were generally looking at 2026 more favorably. This is critical, as small businesses account for 99% of all U.S. firms, employ about 46% of all workers, generate 55% of net new jobs, and make up about half of the GDP. Capital expenditure data reinforces this picture, with federal statistics showing 6.2% year-over-year growth through October, driven substantially by spending on automation and technology.
Okay, so what’s your final takeaway for 2026? How do you think the U.S. will do?
Left alone, the U.S. economy is poised for above-average growth, likely in the 2.3% to 2.5% range. Some forecasters are looking at momentum from the last half of 2025 and estimate 3 to 4%, which is likely too optimistic. Much of that growth will be unbalanced, with some sectors seeing rapid growth while many risk remaining at a modest stall speed.
It’s important to keep in mind that the majority of growth comes from consumers and business leaders being willing to invest and spend. But unless uncertainty eases, that could pose a headwind against hitting the Fed’s 2.3% annual growth rate.
