What the K-Shaped Economy May Mean for Electrical Construction

Last year at about this same time (as we presented our annual construction forecast), I wrote about the results of ECM’s quick “vibe check” survey conducted immediately after the presidential election in order to explore possible correlations between sentiment toward the election results and anticipated changes in market conditions. What areas of business (if any) might be most affected by the election, and how might those translate to the electrical industry specifically over the course of the coming year? How would increased tariffs on foreign goods entering the United States, for example, affect material prices and supply chain issues in our market? These were just a few of the questions we posed to our audience. Mainly, we were interested in gauging how our readers expected key issues (such as inflation, unemployment, deregulation, tariffs, the ongoing skilled labor shortage, and infrastructure investment) to fare in 2025. Fast forward a year, and I’m not sure we have much clarity. After reading and analyzing all of the predictions from the most credible construction resources, there still seems to be a lot of unknowns in play.

As usual, Jim Lucy, head of content for EC&M’s sister publications, Electrical Wholesaling and Electrical Marketing, was up for the daunting task of sifting through an overwhelming amount of data, economic forecasts, and trends reports, highlighting key trends that will most likely affect our industry and identifying which market segments are poised to see the greatest growth. As we head into 2026, I can’t help but come back to a phrase that seems to be dominating the conversation: “K-shaped economy.” 

According to a recent press release from Bank of America (BofA), 2025 was dominated by uncertain fiscal policy, the AI surge, China’s overcapacity, record fiscal deficits, and excess liquidity, all of which continue to evolve. “As the world begins to better understand how artificial intelligence impacts economic growth, inflation, and corporate investment, BofA Global Research economists and strategists are bracing for more volatility in 2026. The AI-driven equity boom remains a defining feature of the ‘K-shaped’ economy, adding another layer of risk,” states the release. “Despite these lingering concerns, our team remains bullish on the economy and AI,” said Candace Browning, head of BofA Global Research. “We are optimistic on the two most influential economies, expecting above-consensus GDP growth for the U.S. and China. Furthermore, concerns about an imminent AI bubble are overstated, in our view, and we expect AI investment to continue to grow at a solid pace in 2026.”

In his special report, Lucy echoes this theme. He writes: “The electrical construction industry is a good example of the K-shaped economy in action. Riding the upper growth arm of the K is the data center market (growing annually at a high double-digit growth rate). Hanging onto the lower leg of the K with little or no growth are many other key construction market segments, such as residential, office, and much of the industrial market (outside of semiconductor plants).”

Bank of America’s latest economic forecast predicts stronger-than-expected GDP growth (2.4% in the United States) in 2026, driven largely by AI investment, fiscal stimulus, and trade policy. Lucy’s forecast mirrors this projection, anticipating growth in the low single digits for the U.S. electrical construction market; however, he emphasizes business conditions will vary widely by local geographic market and individual construction niche. Next year, I will inevitably look back and write about whether the K-shaped economy turned out to be just a buzzword or a reality. If it does gain traction, growth will ultimately be uneven, creating winners and losers depending on sector, location, and specialization of projects. Electrical design firms and electrical contracting companies positioned on the upward arm of the K (most likely those heavily immersed in the booming data center market) will likely prosper in 2026, while those hanging onto the lower leg (those focused on hospitality, private office, retail, residential, or nonresidential projects) might be forced to navigate increasing challenges. 

One bright spot popped up just a few days before press time on December 10: The Federal Reserve dropped interest rates by a quarter percentage point, marking the third  consecutive cut this year and indicating there may be one more cut in 2026 to support a slowing labor market and counter weak job growth. As we head into 2026, only time will tell which overall economic conditions ultimately take shape and stick. Whatever unfolds, I’m confident the electrical industry will respond as it always has — with adaptability and resilience.