U.S. Consumer Confidence and Sector Rotation: Unlocking Opportunities in Construction and Engineering

The U.S. Consumer Confidence Index (CCI) has hit a five-year low, with December 2025's reading of 89.1 underscoring a deepening pessimism about jobs, inflation, and political uncertainty. Yet, for investors, this moment is not just a warning sign—it's a roadmap. History shows that when consumer sentiment rebounds, capital-intensive sectors like construction and engineering surge, outperforming the broader market by wide margins. The key lies in understanding how macroeconomic shifts create tactical opportunities in cyclical industries.

The Link Between Confidence and Capital-Intensive Sectors

Consumer confidence is a leading indicator of economic health, but its impact isn't uniform across sectors. When confidence rises, households and businesses increase spending on large, durable goods and services—think homes, infrastructure projects, and industrial equipment. This dynamic is particularly potent for construction and engineering firms, which benefit from policy-driven infrastructure spending, inflation-linked contracts, and long-term project timelines.

Consider the July 2025 data point, where the CCI rebounded to 97.2 amid easing inflation fears and a stabilization in housing demand. During this period, the construction ETF (ITB) outperformed the S&P 500 by 18%, driven by government contracts under the Bipartisan Infrastructure Law and a 3.1% Core CPI environment. These firms thrive in inflationary cycles because their fixed-price agreements and cost-of-living adjustments shield margins, while rising demand for infrastructure projects amplifies revenue.

Why Construction and Engineering Are Positioning for a Comeback

The current slump in consumer sentiment has pushed the Present Situation Index to 116.8, its lowest since 2022, but the Expectations Index remains stubbornly below 80—a threshold historically tied to recession risk. This duality creates a unique setup: investors are pricing in economic weakness, yet the structural drivers for construction and engineering remain intact.

1. Government-Backed Infrastructure Spending: The $550 billion Bipartisan Infrastructure Law and $50 billion grid modernization plan are multi-year tailwinds. These programs are designed to outlast short-term economic cycles, ensuring steady demand for construction firms.
2. Inflation-Linked Margins: With the Federal Reserve's policy rate at 5.25%, long-term projects with fixed-price contracts become more attractive. Construction firms can lock in higher margins as material and labor costs rise, a stark contrast to sectors like food products (XLY ETF), which have historically underperformed during inflationary spikes.
3. Labor Market Dynamics: While 20.8% of consumers now say jobs are “hard to get,” this labor scarcity is a double-edged sword. For construction and engineering, it means higher wages for skilled workers, which can drive productivity and innovation. For other sectors, it's a drag on margins.

Tactical Opportunities for Investors

The data is clear: when consumer confidence turns upward, construction and engineering sectors outperform. But timing is critical. Investors should monitor two key signals:
1. A Breakout in the Expectations Index: If the CCI's expectations component crosses above 80, it could signal a shift in consumer optimism. This would likely trigger a rotation into cyclical sectors.
2. Federal Reserve Policy Shifts: A rate cut (as seen on December 10) can boost consumer spending and lower borrowing costs for infrastructure projects. Look for construction firms with strong balance sheets to capitalize on this.

For now, the construction ETF (ITB) trades at a 12% discount to its 2025 peak, offering a compelling entry point. Firms like Bechtel Group (BHI) and AECOM (ACM) are well-positioned to benefit from both public and private infrastructure spending. Meanwhile, engineering firms with expertise in renewable energy and grid modernization—such as Jacobs Engineering (JEC)—could see outsized gains as climate-related projects gain momentum.

The Bigger Picture

Consumer confidence is a barometer of economic health, but it's also a lens through which investors can spot sector rotation. While the current data is bleak, history shows that when confidence rebounds, construction and engineering sectors are among the first to rally. The challenge lies in distinguishing between temporary pessimism and structural weakness. For now, the fundamentals for capital-intensive industries remain robust.

As the market grapples with inflation, tariffs, and political uncertainty, construction and engineering firms offer a rare combination of resilience and growth potential. For investors willing to bet on the next upturn in consumer sentiment, these sectors are not just a play—they're a necessity.

Final Takeaway: Position your portfolio to benefit from the next CCI rebound. Overweight construction and engineering, and underweight sectors like food products that struggle in inflationary environments. The road to recovery is paved with infrastructure.