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Construction Inflation 2025 Update Nov
Please refer to Construction Inflation & PPI 2025 updated 10-17-25 for extended discussion of inflation, how and when to apply, historical indices, PPI Data and Tables. Also see Construction Briefs Sept 2025 for August PPI data. No PPI data has been updated since Aug data issued in Sept.
We are still missing a lot of information. It was expected that much of the tariff costs would show up in Q3, or even Q4, so these costs are more likely to go up than down. But we can’t see those changes in cost. However, there are no shortage of reports of cost pressures. It’s much more than just tariffs.
Turner Nonres Bldgs Index is up 3.5% ytd for Q3, up 1.1%-1.2% each quarter.
Rider Levitt Bucknall Nonres Bldg Index for Q3 is up 3.3%, up 1.0%-1.1% each quarter.
Mortenson Nonres Bldgs Index is up 6.3% for 9 months.
Census New Single Family Home Index is up 3.9% YTD for 8 months thru Aug.
RS Means Nonres Bldgs Index is up 3.4% for 9 months, w/o margins.
The Producer Price Index for construction materials shows these items up greater than 4% ytd as of Aug: Concrete pipe, Paving Mixtures, Lumber/Plywood, all copper and aluminum wire and shapes.
30-year average inflation rate for residential and nonresidential buildings is 4.1%. But when excluding deflation in recession years 2008-2010, for nonresidential buildings the long-term average is 4.7% and for residential it’s 4.9%.
For Non-bldg Infrastructure the 30-year average is 3.6%. When excluding deflation in the recession years 2008-2010, Non-bldg long-term average inflation is 3.9%.
All of these long term averages went up in recent years because, instead of including 1991-1994 at 2%/yr, we are now including 2021-2024 at 7%-8%/yr. All long term and short term inflation rates went up.
Since 2011, Nonres Bldgs inflation is 4.8%, Residential is 5.4% and Non-bldg is 4.3%.
The forecast values carried in the following tables reflect trades and firms currently posted Q3 inflation trackers, using an assumption that rates tend to follow the current pattern and with no reasoning to assume a Q3/Q4 price decline.
Construction Briefs Sept 2025
The headline construction data is the year-to-date (ytd) comparison. Through July data, ytd2025 is -2.2% compared to ytd2024. But where is it headed. Watch for this. Last year spending was increasing until it peaked in October. This year spending is falling and will continue to fall into Q3. Every month now the ytd spread gets worse, because 2025 is decreasing and 2024 was increasing. It’s significant in residential which is currently thru July down YTD 4.0% and is forecast to finish 2025 down 5.2%.
Construction Spending is down 7 out of the last 9mo, now down -3.5% or an inflation adjusted total -6.5% since October. Over that period spending is down most significantly in Residential. Residential spending peaked in October 2024. Since then it’s down 10% ($90bil). Warehouse is down -12% ($8bil). Manufacturing is down only 6% but that is $15bil. Manufacturing is experiencing the tail end of a huge volume of work that peaked also in Oct., 2024. It is expected to continue on a slowly declining spending slope for at least the next year. Spending is up the most now in Data Centers, on track to gain 32% (+$10bil) in 2025 and 31% ($13bil) in 2026.
When spending is up by just a little it looks like we are making progress. But we are always fighting inflation. If spending is up by 3% but inflation is 4%, then real business volume declined by 1%. If spending is down 5%, with 3% to 4% inflation, business volume is down 8% to 9%.
Overall, business is declining. The current data in the table below indicates constant$ spending, or business volume, drops for the next three years.
Do not overlook the impact of inflation. Residential spending for 2025 may end down only 5.2% but spending includes inflation of 4.7%. When real residential volume is compared to real volume in 2024 we find that residential volume of business declined 9.1% in 2025. This happened also in 2023, then not since 2009, when it fell 24%. Let that sink in! Residential business volume in 2025 is forecast down almost 10% ($85bil). Since the most recent peak spending in 2022, residential volume is down almost 15%, (~$150bil).
Since 2011, (excluding recession yrs) construction jobs thru Aug increased on average by 150,000 over the 8mo. For 2025, jobs thru Jul increased only 6,000, the slowest jobs growth (ex recessions) in 50 years. Residential construction jobs peaked in Sep’24. Spending was near the May peak from August to December. Since then, spending has been falling and will continue to fall. Rsdn jobs have fallen 7 out of the last 10 months. Rsdn jobs are down 1% ytd. Nonresidential and Nonbuilding jobs are both increasing slightly. The outlook for 2025 has construction jobs falling by 40,000. Jobs are expected to fall even more in 2026.
While many of the construction cost items in the PPI are tame so far, there are a few that have outsized gains. PPI YTD thru Aug vs the 2024 avg Conc Pipe +6.2%, Lumber/Plywd +4.4%, Fab Str Steel +3.5%, Nonferrous wire +7.2%, Alum Shapes +12%, Diesel -10.3%.
Final Demand pricing for Nonres Bldgs holding down at 2% or lower. Construction Analytics inflation rate for 2025, which includes inputs from eight sources, is 4.4%.
Remember, the PPI does not track imports or tariffs.
Construction Briefs Aug 2025
The biggest story in construction data right now is jobs.
Average construction jobs growth through July, last 25 years, excluding recessions, +130,000.
Average construction jobs growth through July, last 10 years, excluding recessions, +140,000.
2025 Construction Jobs growth through July, +21,000.
Not so surprising, as the Constant $ construction spending through July is down -5.7%, (compared to same months previous year), steepest decline since 2011, which was the end of the great recession. Constant $ (inflation adjusted) construction spending is now back to early 2022 level.
Construction Spending is down 5 of the last 6mo, now down a total -3.0% from Dec. Over that period spending is down most significantly in Residential, Manufacturing and Commercial w/o Warehouse. It’s up the most in Data Centers, Highway and Public Utilities. Overall, business is declining.
Construction Spending inflation adjusted is forecast to drop slightly every month for the rest of the year. Expect constant $ spending at year end down -6.3% from 2024. Uncertainty over tariffs and funding subsidies has slowed decision making on planning and moving new projects forward to construction. This is not an environment to expect jobs growth.
If jobs were to move at the same rate as business volume, with 2025 construction spending in constant$ expected to fall -6.3%, then jobs would be expected to fall -6.3%. That’s 500,000 jobs. The only times we’ve ever lost 500,000 jobs in a year was in both 2009 and 2010. In those years, after falling 17% in the previous 3 years, business volume dropped another 12% and 10% respectively.
Residential construction jobs peaked last September and are now down 1% or 35,000 jobs since then. In Constant $, residential spending is down 10% since last September. Jobs never move at the same rate as spending. This has a significant impact on productivity.
Data Centers are the bright spot in construction spending, up 17% since December and forecast to finish the year up 30%, an increase of +$10bil.
Biggest forecast declines in Current$ construction spending: Residential -5.8% (by far largest $ decline, -$55bil); Manufacturing – 6.5%, -$15bil; Warehouse -10%, -$7bil; Office (ex Data Centers) -10%, -$7bil; Comm Retail (ex Warehouse) -8%, -$6bil.
Manufacturing spending is now receding from an astronomical high. From 2019 through 2021 spending was averaging $80bil/yr. In 2024 it reached an average of $235bil, and peaked in Oct at $244bil. In June it was only $223bil and it’s expected forecast for 2025 is down -6.5% from 2024, but that is still a very high $220bil.
Construction Briefs June 2025
Construction Spending Explained
- New Starts + Existing Backlog generate Spending
- Spending = Revenue
- Revenue includes inflation which adds nothing to volume
- Revenue – Inflation = Business Volume
Construction spending fell slightly in April, down 0.4% from March. Spending has fallen slightly each of the last 3 months, but total spending is still at/near an all-time high with the seasonal rate at $2,200 billion. The forecast predicts spending will increase to 3% growth by year end.
Construction Forecast Update – Data Centers shows the largest % growth for 2025, forecast +33%. Manufacturing is still the largest $ contributor ($223bil/yr) to nonresidential bldgs total spending ($772bil/yr), but has fallen 6% in the last 5 months.
Peak manufacturing construction spending was posted from Sep thru Dec 2024. The avg of 1st 4mo of 2025 is down 4% from that peak. By Q4’25, avg spending will be down 10% from peak.
BTW, this is totally normal. We are beginning the tail end of an above normal huge influx of new manufacturing projects that started over the last 3 years, and the spending curve is beginning the downhill slope. Spending will continue to fall for the next 3yrs.
Data Center construction spending has not yet hit peak. Data Centers are continuing on a phenomenal streak of +45% growth in 2023 and +56% in 2024 and now 33% in 2025. The avg of 1st 4mo of 2025 is up 39% from same 4mo 2024. Spending will finish the year almost 20% higher than today. 2025 forecast +33% over 2024. Currently projecting peak spending end of 2027, or later.
Headwinds could slow new starts growth. Many economists predict current trade impacts will slow overall economic growth. That in turn could slow capital expenditures, which, in this case, is new construction starts.
Any capex pause could reduce all Data Center numbers. However, starts are up 400% since 2020 and could finish 2025 up 500%. Would take a lot of canceling or delaying to collapse these numbers. (This is going to first appear in construction starts, “firms pausing or delaying capex.” It’s already started with Data Center).
What’s propping up construction spending growth? Here’s the top growth markets.
- Market——1yr/%/$ growth ——3yr growth
- Educational 1yr/+8%/+$10bil +3yr/+30%/+$30bil
- Data Centers +56%/+$10bil +286%/+$18bil
- Public Utilities +11%/+$9bil +58%/+$38bil
- Power +10%/+$14bil +24%/+$29bil
- Highway +4%/+$6bil +40%/+$40bil
Data Centers far and away takes the prize for highest % growth, but Data Centers is only 1.7% of all construction spending. Power is 7%, Highway is 6.6%, Educ is 6.3%, Pub Util is 4.4%
Manufacturing is notably absent from the above list, because after 3 outstanding years, Mnfg is no longer contributing growth. Mnfg spending is beginning to taper off. Mnfg is 9.3% of construction spending. The only market over the last year, or 2 or 3 years, with more $ spending than Manufacturing is Residential.
Mnfg 1yr/+20%/+$39bil 3yr/+284%/+$150bil
Mnfg 2025 forecast -10%/-$24bil
What’s holding spending growth back?
6-17-25 When May construction starts are reported later this month, I’m expecting an overall decline and a lower forecast. There are already reports of pauses in manufacturing facilities and data centers. Hiway and Public Utilities are probably immune from cuts but Power may see some reductions. Education and Healthcare are questions. Residential construction expected down slightly. Housing permits continued a downhill trend in April for the fourth month in a row. KB and Lennar report market pricing is down slightly. # of homes on the market is increasing.
This next plot shows the number of workers required to put-in-place $1 billion of construction in 1 year. Except for Nonbldg Infra, which has remained relatively flat over time, it requires more jobs to put-in-place $1bil today than it did 10 years or 20 years ago. Total construction workforce (8,300,000) divided by # of billions$ put-in-place (2,200 billions$/yr) is the simplest way to show the decline in construction productivity. Results here broken out for major sectors.
Construction Jobs Total hours worked peaked in March, now down 0.4%. For May, jobs increased by 4,000 (<0.1%), but unemployment dropped from 5.6% to 3.5% (175,000). That would mean that 171,000 workers dropped out of the workforce.
Steel Tariffs 50%
50% of nonres bldgs are structural steel. Str Stl is 10% of total bldg final cost. Nonres bldgs construction spending = $770bil/yr., $385bil on SS nonres bldgs., $38.5bil on str stl
Struct Steel material is only 25% of steel total contract cost, so 38.5 x 25% = only $9.6 bil is mtrl used in SS nonres bldgs. So at 50% tariff = $4.8bil added cost to nonres bldgs total spending. (This assumes ALL steel increases in cost).
Above is structural steel only. When including all other steel used in a building, (rebar, studs, frames, etc), steel is 15% of total bldg cost. So added cost would be $7.7bil.
And that is just nonres bldgs. MF Rsdn uses a little steel, but Nonbldg markets, Power, Highway, Transport, Pub Util adds about another $5bil.
So, steel tariffs, IF ALL STEEL WERE TO INCREASE, adds inflation to total Nonres Bldgs and Nonbldg. Half of all Nonres Bldgs use structural steel, so inflation to SS bldgs is 4.8/385, or 1.25% on structural steel bldgs. If looking at the macro view, inflation over the nonres bldg sector, then the $4.8bil increase would be divided by the total nonres spending, or 4.8/770 = 0.625%. All other bldg steel, applied to all nonres bldgs, added another 2.9/770 = 0.4%
Nonbldg Infrastructure markets, if it is a SS building, add the same 1.25% + 0.4%. But Public Works and especially Bridge construction can add significantly more. If domestic producers also raise pricing to follow suit with tariffs, as expected, this is what happens to total Nonres inflation.
US imports 30% of steel it uses. 40% of all steel is used in construction. If 30% is balanced across all types of steel, then 30% of constr steel is imported. (It would take some concentrated effort to determine % imports for each of the individual steel uses.) IF ONLY IMPORTED STEEL WERE TO INCREASE and no domestic manufacturers raise prices, 30% of building steel increases in cost. That is not likely at all. But if so, tariffs would add only 0.4% to nonres bldgs and about 0.1% for all other steel.
Construction Forecast Update May 2025
The total construction spending forecast, now at $2,237bil, +3.7% vs. 2024, has been lowered a bit since the Outlook in Feb. ($2,272bil, +5.5%). Most of the reduction is in Residential, from $997bil, +7.2% down to $958bil, +3.0%. Nonres Bldgs was reduced by $11bil and Nonbldg increased by $7bil. Compared to the average for the year 2024, current total spending YTD is up 2.6%, but is expected to pick a little up throughout the year across all sectors.
Constant $ growth is forecast down 0.7% in 2025 and down more after that. Inflation Index shows annual percent and index to base 2024 = 100. All years, current spending / index = reported as constant 2024$, as if all constant years are the same 2024$.
Residential Single Family spending has been in a range +/- 2.5% for the last 7 months. With only a few months lower than that, this range extends back 18 months. Take out 3%/yr inflation and you can see that SF volume has been flat to down. Multi-family spending, for the last 12 months, is down 15% off recent highs in Q1’24. Reno/repair spending extended recent highs across 5 months in mid 2024, before falling off 10% in Q4, and now, in Q1’25 it has gained back most of that drop. Any spending gains in the near future would be driven by multi-family.
Manufacturing is still the largest $ contributor ($222bil/yr) to nonresidential bldgs total spending ($772bil/yr), but has fallen 6% in the last 5 months. The trend is down in most months for 2025 and down in 2026. This decline is entirely expected and you can read about it in my article, The Manufacturing Taper.
Data Centers shows the largest % spending growth for 2025, forecast +39%, continuing on a phenomenal streak of +45% in 2023 and +56% in 2024. Data Center starts increased 300% over the previous 3 yrs. and still increase in 2025 and 2026, but at a slower rate of growth. Manufacturing spending peaked in Oct’24. Data Center spending continues to increase for the next few years. Both of these forecasts take into account some cancelations or delays announced recently (see May Briefs), however do not account for any major stoppages due to recent trade impacts.
The largest $ increases in spending are Power, forecast to increase +$16bil, and Highway +$13bil. Educational spending is forecast to post the largest nonres bldgs $ growth in 2025 (+$12bil, +9%). Data Centers increase $10bil.
This same scenario that looks to occur in Manufacturing will occur also in Highway/Bridge. Normal starts were about $100bil/yr, with slow growth. But for the last 3 years, actual starts totaled closer to $500bil for the 3 years or $167bil/yr. This strong growth in starts is expected to continue at least into 2025, totaling near $650bil for 4 years. Again, consider that part of that is inflation, but the remainder is government investment growth. So a decline from the taper back to normal for Highway/Bridge may not show up at least for the next few years. But once the taper begins it will have the same effect on Nonbldg Infrastructure spending that we will see from Mnfg in Nonres Bldgs.
Typical jobs growth is 2.5% to 3.5% per year, even though spending can sometimes far outpace that. But jobs growth doesn’t track spending, it tracks volume growth. Volume is spending minus inflation. For example, for the 4 years 2021 thru 2024, spending increased 44%. But inflation increased 33%. Volume growth was only 11%. Jobs increased 12.5%. For 2025, Inflation will outpace spending growth by 1%, but jobs are still expected to increase by 1.5%. Rarely do jobs decrease. That could change.
There are 870K construction jobs in TX. 500K are immigrants and 300K are undocumented.
New starts are forecast up in 2025, but I would caution there are a lot of headwinds that could slow new starts growth. Many economists predict the current trade impacts will slow overall economic growth. That in turn could slow capital expenditures, which, in this case, is new construction starts. So far year-to-date, spending is outpacing new starts growth. That means backlog is decreasing, mostly in nonresidential buildings. We haven’t seen a decrease in Nonres Bldgs backlog since pre-2011. Residential backlog is down slightly. Nonbuilding is increasing.
See Also Construction Briefs May 2025
and Construction Briefs Apr 2025
5-15-25 all ppi DATA UPDATED TO APR See Construction Inflation 2025
I’ve increased the inflation outlook since Feb to a range of 4.5% to 5%. Inflation may be the most uncertain of all factors affecting construction this year. We have yet to see any significant impact from tariffs, and there is sure to be impacts to many construction inputs. We may not know the total impact for several more months. But I would expect, if anything, inflation will go up from here, not down.
The bees are swarming the flowers outside. At least some lifeform is content and at peace with this world.
Construction Briefs May 2025
For the 9th consecutive year, I will be speaking at Advancing Preconstruction. I will be opening the program May 22 to the plenary session with a summary of the current and expected economic conditions affecting everyone involved in construction, all geared towards one word, RISK.
Construction Spending Q1’25 vs Q4’24 notable Q/Q increases: Education, Healthcare, Amusement/Recreation and Communication are all up 2% to 3%. Highway is up+4.9%, Data Centers +5.4%, Warehouse +7.5% and Lodging +8.3%.
Construction Spending for March is down 0.5% from Feb, but that’s because Feb was revised UP by 0.5%. Jan also revised up 0.66%. YTD Total vs Jan-Mar 2024 is up 2.8% YTD. Data Centers vs Jan-Mar 2024 is up 40%.
Construction Spending Q1’25 vs Q4’24 is UP in every category except Residential, Commercial/Retail w/o Warehouse and Manufacturing (Mnfg was expected). Residential and Comm/Rtl are down only a slight 0.2% and 0.4%. Manufacturing is down 4.7% Q1vQ4. This is the beginning of the Manufacturing spending taper as early projects come to an end. I described that taper here. The Manufacturing Spending Taper
Not seeing any major indications in spending due to tariffs yet. Still early in the data (thru Mar) for that.
Construction Jobs increased 11,000 in April. However, hours worked dropped by 0.6%. Total workforce hours worked declined by an equivalent of 50,000 jobs. Jobs are now at 8,316,000, an all-time high. Jobs are up 27k year-to-date, the slowest growth for the 1st 4 months since 2012 (excld 2020). Although hours worked fell in April, total workforce hours worked increased 2.1% over same 4mo 2024. Average yr/yr growth for Jan-Apr hours worked is 3.7% for the last 10 yrs (ex 2020).
J P Morgan expects imports from China to fall 75%-80% in the 2nd half of the year. Total all imports from all sources are expected down 20%. Some products are going to become unavailable.
The U.S. imports about 30 million metric tons, about 30% of total steel used, of all types of steel annually. The U.S. imports about 6 million metric tons of steel pipe annually. Approx 2/3rds of steel pipe used annually in the U.S. is imported. If the U.S. loses its imports of steel pipe, we can’t support as many building projects. Pipe here refers to pipe and tube. That includes things like gas and oil pipelines, water pipe, steel conduit and structural square/rectangular tube sections (Trump’s Wall).
What’s frustrating this week is all the latest construction spending and jobs data just came out, and everyone wants to know, What’s the impact on the forecast?, and none of the data reflects tariff impacts or potential slowdowns. Spending is thru Mar31 and jobs are thru Apr12. Some of the inflation data is 1 to 2 quarters behind.
I am expecting, when I prepare the Midyear Forecast, that spending projections will go down, perhaps 1% to 3%, and inflation projections will go up. Currently, I’m carrying inflation between 4%-5%. Owner’s may slow or even cancel capital expenditures and material prices are broadly expected to increase.
When PPI data is released May12, that will be thru April. But remember, PPI data is domestic products only. So any inflation in the PPI data is domestic suppliers adjusting pricing to reflect pricing similar to expected increases to match imports. We might begin to see our first clues of tariff impacts/demand when the next construction starts data gets released around the end of May. How much in previous starts have been canceled/delayed? We already know of some chip plants and data centers canceled/delayed.
Construction – What to Watch: Cost to build going up; Cost to finance is up; Product availability in question; Product delivery schedule delays; Margins pressured; Small/Midsize firms squeezed; Labor let go/disappearing; Projects in planning, delayed; Project ROI not met; Projects planned, canceled.
I recommended (going back 6 yrs ago, but still relevant today) that every construction cost estimator is going to need to identify in every estimate/budget presented to an owner for every upcoming project, all items subject to price revision due to tariff. If you don’t you stand to lose your already meager profits.
I can’t even begin to know what to tell construction cost estimators to carry in budgets for increased cost due to tariffs and supply issues. Best I could suggest at this time is to carry an agreed allowance (IMO, better than contingencies), which can be visited at a later date and adjusted to actual cost. Contingencies are for unknown, unexpected, unidentified issues. Allowances are described in the basis of estimate for identified cost issues, but at unknown cost amounts. All allowances in any estimate/budget should be identified at conception with intent to revisit at later date to adjust to actual cost. (The most common allowance you may be familiar with is a rock allowance). Identify allowances up front and reach agreement on budgeted cost with all parties. This will make your contract administration go a lot smoother than trying to negotiate how much of the contingency you can use for a cost increase that was foreseen. The only unforeseen here is actual cost.
ABI – DMI – CBI Leading Construction Indicators
With exception of residential, which has short durations and for which backlog is always only about 30%-35% of previous yr revenues, for all other work, never (since 2010) was backlog shown to be less than the previous yr spending. https://edzarenski.com/2021/05/01/abi-dmi-cbi-leading-indicators/
Construction Backlog, all work under contract yet to be put-in-place, usually extends out 2 to 3 years. Backlog changes only IF new starts are greater than spending in the month, backlog goes UP. If new starts are less than spending, backlog goes DOWN. Subtract canceled projects from starts causes backlog to go down, but delays are are just moved out in time, so are still in backlog.
PPI INPUTS Q1 vs avg 2024: to Nonres Bldgs +0.9%, to Residential +1.15%, to Highway +1.0%. All these being near 1% for Q1, if growth is constant, would be near 4% for the year. Big IF! Paving mixtures +11% in Q1, Lumber Plywood +4.5%, Fab Str Steel +0.03%, Fab Str Stl Bridges -1.1%, #2 Diesel Fuel -9.6%, Steel Pipe and Tube -3.85%, Nonferrous Wire and Cable +1.8%, Copper and Brass Mill Shapes +4.7%, Aluminum Mill Shapes +7.5%.
PPI Final Demand 1st 3mo vs avg 2024: Avg Nonres Bldgs +1.3%, Educational +1.6%, Healthcare +2.7%, Roofing Contractor + 2.8%, Avg 4 trades +1.7%. Your monthly reminder, although this index is posted monthly, it is corrected quarterly. April data is the correction month for Q1.
New home construction costs have risen about 3% in the last year, from lumber down 4% to concrete up 6%, per JBREC. The US Census Constant Value Rsdn Index is up 3.5% for the 1st 3 months 2025.
The Biden admin supported the construction $200 billion in new manufacturing facilities that began in 2022 and is now tapering down. It will take a lot of jobs to fill those facilities. But will jobs grow in the current economic environment?
Just about anything that can be considered a leading indicator is pointing down. Layoffs, container ship projected offloads are down and falling, China cut shipping to US, supply chains disrupted, immigrant fears affecting labor. Expect costs up, workload down, labor tight.
I’ve been asked, Why don’t you use AI to develop economic analysis? Artificial Intelligence sometimes gets analysis really wrong. There is some percentage (40%?, 60%?) of end results that AI creates that is literally just made up. If you were to use AI to develop forecasts and analysis of construction data, without having a thorough knowledge of the data and an ability to recognize when it’s meaningful, or garbage, then how would you know when AI is right or wrong. Understand your data well enough to know when your analysis makes sense. For my part, I’d rather spend my time understanding the data and the analysis then to spend it verifying if AI is producing realistic and meaningful output.
Summer is just around the corner. The Hummingbirds returned last week.
Construction Briefs Apr 2025
Tariff actions are not yet reflected in Feb PPI Inputs or PPI Final Demand index. Still early. Also remember, PPI does not include imports or tariffs on imports. When we do see movement in the PPI, it reflects domestic pricing decisions following on tariffs.
Lutnick: “Foreign goods may become a little more expensive, but domestic goods do not.” FALSE see next par.
PPI Excludes Imports/Tariffs. The 2018 steel tariffs of +25% applied on imported steel. However the 2018 PPI data shows that the cost of ALL DOMESTIC steel mill products (of all types) produced in the US increased 18% in 2018, after the steel tariffs were imposed.
If tariffs, for example, affect only 10% or 20% of products used in the industry, then the PPI shows us the domestic producers reaction to tariffs, which gets applied to the other 80% to 90% of product. For instance all steel is not imported, so not all steel will experience a tariff. The point here is that tariffs impact pricing decisions on all domestically produced products, not just the imported products. Consumers pay the price.
Impacts on Construction Inflation and Spending (guesstimates).
2021 inflation was 8%-14%. 2022 it was 12%-17%. Could 2025 repeat 2022? Yes. Will it? ??? I guess it hits 6%-10%.
I’m guessing some projects contributing to 2025 spending will be canceled/postponed. So maybe spending drops 5% from here, to zero growth. Construction spending annual growth is normally in the range 4% to 10%. 2025 and 2026 were both forecast at 5% to 7%. No doubt some projects will be canceled or mothballed. So the next 3 yrs spending gets reduced, and cost gets increased.
I’m beginning to think one of the first issues we have to deal with is supply shortages. All types of imported products are not going to be available, and there aren’t enough domestic products to replace them. This will add delays and cost to building projects.
Yeears ago, when I was a construction cost estimator, a major client would run numbers on a proposed new building project. If it couldn’t balance a ROI in 7 yrs, project would not move forward. As cost to build increases, it becomes harder to hit ROI. This supports that some projects may be canceled or postponed.
- Construction – What to Watch
- Cost to build going up
- Cost to finance is up
- Product availability in question
- Product delivery schedule delays
- Margins pressured
- Small/Midsize firms squeezed
- Labor let go/disappearing
- Projects in planning, delayed
- Project ROI not met
- Projects planned, canceled
Virginia has the largest concentration of Data Centers in the U.S. Virginia is projecting energy shortages due to the extreme demand DCs put on power grids. If you don’t build out the energy grid, the data centers put too great a demand on the current grid. “There are six states in the United States where data centres already consume over 10% of the electricity supply, with Virginia leading at 25%.” https://www.iea.org/reports/energy-and-ai/understanding-the-energy-ai-nexus
In the Q1 pre-tariff outlook, Data Center spending (SAAR), began the year 16% above the avg of 2024, is steadily climbing at 1.5% to 2%/mo., and sometimes more, is now up 22% vs avg 2024. By midyear the rate of spending will be up 28%. Data Center spending increased 45% in 2023 and 56% in 2024. Forecast for 2025 +37%. Obviously, this could get reduced if/when some projects get canceled.
The New Albany (Ohio) project, projected worth $1bil, is one of the two announced DC projects that have been halted https://www.nbc4i.com/news/local-news/licking-county/microsoft-pulls-out-of-licking-county-projects/
What if: A 10%/yr reduction in forecast new Data Center starts in 2025 and 2026 would result in reduced Data Center construction spending by -3% in 2025, -7% in 2026, -7% in 2027 and -3% in 2028.
What if: A 10%/yr reduction in forecast new Data Center starts in 2025 and 2026, combined with a 10% cancelation of 2024 starts, would result in reduced Data Center construction spending by -8% in 2025, -10% in 2026, -8% in 2027 and -3% in 2028. A 10% drop in Data Center spending is $4bil/yr.
It is not clear if the two halted projects mentioned in the article above were already committed construction starts or future proposed starts.
The Fed Chair just said what every credible economist, every economics textbook, and every empirical study shows: Tariffs reduce output and raise prices. – Justin Wolfers, Econ professor at Michigan, Senior fellow, Brookings and PIIE.
Let’s not forget what initiated growth in new manufacturing facilities. New manufacturing building contract starts over the last 3yrs is just over $600bil. Normal starts without government investment would be about $300bil over 3yrs. About $100bil of spending growth over the 3 years is inflation, leaving the remainder of about $200bil in spending growth attributed to government investment. All that began, and most of it got spent, under the previous administration. https://www.forbes.com/sites/courtneyfingar/2024/12/12/manufacturing-jobs-boom-arrives-too-late-for-biden-to-benefit/
Whenever we get an unusually large increase in new construction starts and spending, the tapering off of those projects leads to a decline on the tail end. Mnfg new starts peaked in 2022-2023. We are entering the period of the manufacturing construction spending taper. Mnfg spending has fallen slightly in 4 of the last 5 months. The forecast for 2025 is down -10%.
Microsoft has announced a pullback in spending on new Data Centers. Reduced demand negates need for new facilities, kills expansion plans, lowers new construction forecast, decreases jobs growth in construction. Mothball if partially built factory, not only expensive for owner, but also negative impact to contractor’s forecast revenues.
Whenever there’s a devastating natural disaster, causing destruction to homes, property and infrastructure, the supply of contractors, laborers and materials stays the same while demand skyrockets from victims trying to rebuild. Contractors generally pick more profitable projects over less lucrative ones.
In the Construction Analytics Outlook Feb 2025 report I said, “Don’t be surprised if 2025 construction jobs growth slows a bit. Jobs are slightly ahead of volume growth, particularly in the Non-building Infrastructure sector.”
Construction gained 19k (+0.2%) jobs in Feb, BUT total hours worked declined 0.3%. Total jobs have increased but Hrs worked has gone down the last 5 months. We’ve posted minor jobs gains in both Jan and Feb, and yet unemployment has gone up from 5.2% in Dec to 7.2% in Feb.
The March jobs report shows only minor gains in the # of jobs. We’ve added only 24,000 new jobs in the 1st quarter, the slowest 1st qtr jobs growth in 13 years (except for 2020, Covid). But hours worked in March increased by 1.5%. That acts on the entire 8.3 million workforce and is equivalent to adding 128,000 more jobs.
The jobs numbers reported April 4th cover the period from Feb15-Mar15. There are not yet any impacts from tariffs reflected in the jobs numbers.
We may see the term “force majeure” come up a lot in the near future. And if construction contracts don’t have a force majeure clause, there may be a lot of contractors in trouble.
My guess is if the people of Greenland take a vote to Join the United States, it would be 99-1 No. Of course, they would say “No, thank you.” As they so eloquently put it, “We’re not assholes.”
Tariffs Create Unknown Costs to Construction
Assessing the impact of tariffs on the cost of construction accurately has now become a nearly impossible task. Tariffs can be on PARTS used in the manufacture of goods. Who (architect?, engineer?) will identify which parts included in which products used in the building are subject to tariff? Is only 10% of the whole product subject to tariff?
For example, look at something simple like light fixtures. The shell, the ballast, the reflector, the shade, the lamps or the wiring could be made in China. Who’s job will it be to identify where parts are made? How much is the cost of the part in question? Who now estimates the share of tariff increase on those parts to determine tariff impact on cost of manufacturing the entire light fixture?
Expand that issue to a pump assembly with valves and pressure gauges. Who identifies which parts in the pump assembly come from what country? How does an estimator determine the cost of manufacturing the pumps, valves and gauges and determine what fraction of total cost has a tariff?
This will inevitably lead to inflation, but it will be hidden inflation, hard to determine if a manufacturer’s price increase for a product is substantiated. This is not like the tariff on mill steel, a 25% tariff on mill steel which represents 25% of final structural steel bid, which represents 10% of the building cost.
At the conceptual or schematic design phase of construction, all the products are not even identified. And the project start date might be a year or two years out. It can’t possibly be determined with certainty what factor should be carried to cover cost increases due to tariffs.
Inflation factors and contingency factors will need to increase to cover known unknown costs. This increases the share of the budget that is unidentified, always a contentious issue with owners. Then instead, identify the known tariffs, but the unknown value of end-cost, and carry as an allowance. Frankly with the margins general contractors or construction managers get for services on a large construction project, these unknown factors, if understated in cost factors or left unaddressed, could wipe out the total fee or profit for the job.
This is not a good position to be in, but I don’t yet see how it would be any different.
PS Here we are in Feb. 2025. I wrote this six years ago. https://edzarenski.com/2019/08/01/next-level-of-tariffs-will-be-unknowns/
Construction Inflation & PPI 2025 updated 10-17-25
11-13-25 See new post Construction Inflation 2025 Update Nov. for all new index tables and plots update dates vary from July, Aug to Q3.
10-17-25 Residential Index reduced and minor reduction in Nonres Bldgs Index, see notes in Construction Analytics Building Cost Indices and Reference Indices. The tables and plots included data only thru July.
9-3-25 Updated PPI tables and plots to JULY data issued 8-15-25.
5-15-25 all ppi DATA UPDATED TO APR
2-21-25 All new data updated to Q4. A major change with this new data / plots, is the change in the base date from 2019 to 2024. These index tables / data cannot be mixed with prior issues. Now using base 2024 = 100 in all data / plots included here. Percents yr/yr or mo/mo don’t change, the indexes change.
To properly adjust the cost of construction over time you must use an Actual Final Cost Inflation Index, otherwise called a selling price index. General construction cost indices and Input price indices that don’t track whole building final cost do not capture the full cost of escalation in construction projects.
Spending Must Be Adjusted by Inflation
Usually, construction budgets are prepared from known “current” costs. If a budget is being developed for a project whose midpoint of construction costs is two years in the future, you must carry in your budget an appropriate inflation factor to represent the expected cost of the building at that time. Why the midpoint? Because half the project cost occurs prior to that point and half occurs later than that. Actually, the midpoint of spending is 50-60% into the schedule, but the calculation to the midpoint of schedule is close. So, the average inflation for the project includes early contracts that have less inflation than average and also later contracts that would have more than the average inflation. Construction inflation should always be calculated from current cost to midpoint of construction, or in the case of using historical data and converting an older actual cost to a future budget, from midpoint to midpoint.
Any time a construction project is delayed or put on hold to start at some future date, construction cost inflation must be calculated and added to the previous budget to account for the unanticipated cost increase due to the delay. Of utmost importance is using appropriate cost indices and forecasting future cost growth to account for the difference in original budget and revised budget.
Besides the estimator’s need to accurately reflect future expected cost, inflation is an important aspect of the company business plan. Typically discussed in tandem with spending, inflation has an impact on tracking and forecasting company growth. All spending includes inflation, but inflation adds nothing except $ signs to the overall growth. For example, in a year when company revenues (spending) increase by 10%, if inflation is 6%, then total business growth is only 4%. To accurately calculate growth, and the need for labor to support that growth, spending must be adjusted by the amount of inflation.
Since 2011, Nonres Bldgs inflation is 4.8%, Residential is 5.4% and Non-bldg is 3.9%. But those averages include the unusually high inflation years of 2021 and 2022. Without those two years, since 2011, average inflation for Nonres Bldgs is 3.8%, Residential is 3.8% and Non-bldg is 2.4%.
2025 Inflation Forecast, Nonres Bldgs +4.0%, Residential +4.7% and Non-bldg +4.0%.
5-15-25 2025 Inflation Forecast, Nonres Bldgs +4.4%, Residential +5.0% and Non-bldg +4.3%.
Types of Construction Inflation Indices
General construction cost indices and Input price indices that don’t track whole building final cost do not capture the full cost of inflation on construction projects.
Consumer Price Index (CPI), tracks changes in the prices paid by consumers for a representative basket of goods and services, including food, transportation, medical care, apparel, recreation, housing. The CPI index in not related at all to construction and should not be used to adjust construction pricing.
Producer Price Index (PPI) for Construction Inputs is an example of a commonly referenced construction cost index that does not represent whole building costs. The PPI tracks material cost inputs at the producer level, not prices or bids at the as-built level.
Engineering News Record Building Cost Index (ENRBCI) and RSMeans Cost Index are examples of commonly used indices that DO NOT represent whole building costs yet are widely referenced by construction firms and estimators everywhere to adjust project costs. Neither includes contractor margins.
It should be noted, there are far fewer available resources for residential inflation than for nonresidential inflation.
One of the best predictors of construction inflation is the level of activity in an area. When the activity level is low, contractors are all competing for a smaller amount of work and therefore they may reduce bids. When activity is high, there is a greater opportunity to bid on more work and bids can be higher. The level of activity has a direct impact on inflation.
To properly adjust the total cost of construction over time you must use actual final cost indices, otherwise known as selling price indices.
Selling Price is whole building actual final cost. Selling price indices track the final cost of construction, which includes, in addition to costs of labor and materials and sales/use taxes, general contractor and sub-contractor margins or overhead and profit.
Construction Analytics Building Cost Index, Turner Building Cost Index, Rider Levett Bucknall Cost Index and Mortenson Cost Index are all examples of whole building cost indices that measure final selling price (for nonresidential buildings only).
Residential inflation indices are primarily single-family homes but would also be relevant for low-rise two to three story building types. Hi-rise residential work is more closely related to nonresidential building cost indices.
Producer Price Index (PPI) Final Demand Indices are an example of construction cost indices that represent whole building costs. Final Demand PPI, or Selling Price, represents contractors bid price to client. Includes labor, material, equipment, overhead and profit. Labor includes change in wages and productivity.
PPI Final Demand Indices should not be referenced monthly. These are quarterly indices. Every three months (Jan, Apr, Jul, Oct) BLS performs an update survey to correct the PPI Final Demand indices. For more than two years, in most quarters, about 80% to 90% of the change in the index for the quarter was posted in the update month. In some quarters, growth is flipped from negative to positive. And still in other quarters the correction month doubles or halves the rate of growth. There is no way to determine how much occurred in the update month or a previous month, but the update # along with the two previous months will get too the correct end-of-qtr index.
January is an update month. PPI Final Demand for Jan index basically includes the correction for Nov and Dec. Therefore, the index should NOT be compared mo/mo. There is only one of three months that the index is known for certain to be accurate, the update month. Compare qtr/qtr, but make sure to use the defined months, the correct update month with two previous months. For ex., (Jan+Dec+Nov) / (Oct+Sep+Aug). Those are the defined quarters. (I don’t make the rules).
Refer to National Inflation Indices for comparison to several national selling price indices or various Input indices. National reference indices are useful for comparison. Few firms project index values out past the current year, therefore all future projections in these tables are by Construction Analytics.
Construction Inflation History
Post Great Recession, 2011-2020, average inflation rates:
Nonresidential buildings inflation 10-year average (2011-2020) is 3.7%. In 2020 it dropped to 2.5%, but for the six years 2014-2019 it averaged 4.4%. In 2021 it jumped to 8%, the highest since 2006-2007. In 2022 it hit 12.8%, the highest since 1980-81.
Residential 8-year average inflation for 2013-2020 is 5.0%. In 2020 it was 4.5%. In 2021 it jumped to 14% and then in 2022 reached 15.8%. the highest on record.
30-year average inflation rate for residential and nonresidential buildings is 4.1%. But when excluding deflation in recession years 2008-2010, for nonresidential buildings the long-term average is 4.7% and for residential is 4.9%.
For Non-bldg Infrastructure the 30-year average is 3.6%. When excluding deflation in the recession years 2008-2010, Non-bldg long-term average inflation is 3.9%.
All of these long term averages went up in recent years because instead of including 1991-1994, at 2%/yr, we are now including 2021-2024, at 7%/yr to 8%/yr. All long term and short term inflation rates went up.
Since 2011, Nonres Bldgs inflation is 4.8%, Residential is 5.4% and Non-bldg is 4.3%.
- Long-term construction cost inflation is normally about double consumer price index (CPI).
- In times of high construction spending growth, nonresidential construction annual inflation averages about 8%. Residential has gone as high as 10%.
- Nonresidential buildings inflation (prior to 2021-2022) averaged 3.7% since the recession bottom in 2011. Six-year 2014-2019 average is 4.4%.
- Residential buildings inflation (prior to 2021-2022) reached a post-recession high of 8.0% in 2013 but dropped to 3.5% in 2015. It has averaged 5.3% for 8 years 2013-2020.
- Although inflation is affected by labor and material costs, a large part of the change in inflation is due to change in contractors’ and suppliers’ margins.
- When construction volume increases rapidly, margins increase rapidly.
- Deflation is not likely. Only twice in 50 years have we experienced construction cost deflation, the recession years of 2009 and 2010. That was at a time when business volume went down 33% and jobs were down 30%.
Historically, when spending decreases or remains level for the year, inflation rarely (only 10% of the time) climbs above 3%. Avg inflation for all down/flat years is less than 1%. That did hold true in 2020 for both Nonres Bldgs and Non-bldg Infra. It also held true in 2023 for Residential. It did not hold true in 2021 or 2022. In 2021, spending was down for nonresidential buildings and flat for non-building. Inflation for both was over 8%.
Differences in Tracking Period
Be careful when referencing YTD growth. YTD can be the growth so far this year, that is, growth compared to December of the prior year, or it can be YTD currentyr/YTD lastyr. Neither represents the growth from the avg of the previous year, which becomes the historical value. Both are useful during the year to judge trends. The average growth for the year accounts for all the peaks and valleys within each year and and is the value carried forward into the index tables and charts.
Also, use caution when referencing Dec/Dec growth. An example of the difference between Dec/Dec tracking or year over year, and annual average tracking, is Steel Mill Products which was down 28.7% Dec22/Dec21, but the annual average for 2022 is still up 9.0% from the average 2021. In fact, the three years 20-21-22 show Dec/Dec combined inflation is +71%, but the annual averages for those same three years shows total inflation growth of 87%. Annual averages should be used to report inflation.
PPI Excludes Imports and Tariffs
When assessing or tracking the pricing effect of tariffs on construction materials, keep in mind that the Producer Price Index (PPI) does not include imports (imports are not produced in the US), so therefore, does not include tariffs. See items 4 and 24 in the FAQ provided by the Bureau of Labor Statistics. Construction PPI changes reflect pricing decisions domestic producers make on domestic products in reaction to tariffs on imported products. Tariffs have big impact on domestic prices.
BLS explanation of method and definitions
The price change we see in the PPI for construction materials reflects the domestic material prices of ALL other domestically produced materials used in the industry. While tariffs may affect only 10% of products used in the industry, the PPI shows us the domestic producers reaction applied to the other 90%.
For example: The 2018 steel tariffs of +25% applied only on imported steel, affected only 30% (the imported share) of steel used in US. However the PPI shows us that the cost of ALL DOMESTIC steel mill products (of all types) produced in the US increased avg 18% in 2018, after the steel tariffs were imposed. Prices of domestic steel receded somewhat, but the point is that tariffs caused a price increase also in domestic steel. The increase in PPI is domestic producers pricing response in reaction to tariffs. Tariffs impacted pricing decisions on all domestically produced products, not just the imported products. Consumers pay the price.
PPI Construction Materials Inputs Indices
See this post for August PPI update Construction Briefs Sept 2025
ALL PPI DATA TABLES UPDATED TO JUL 8-15-25
ALL PPI DATA UPDATED TO APR 5-15-25 PPI data INPUTS for the month of Apr: Paving Mixtures -9.5%, Steel Mill Products +5.8%, Steel Pipe & Tube +6.3%, Nonferrous Wire +3.7% YTD25/avg24: Concrete Pipe +8.5%, Paving Mixtures -8.5%, Lumber/Plywd +4.9%, Steel Mill Products +3.7%, Nonferrous Wire +3.5%, Diesel -10.8%. PPI data FINAL DEMAND Apr closes out Q1. Q1’25/Q4’24: Avg Nonres Bldgs +0.6%, School +0.4%, Healthcare +2.2% YTD25/avg24: Avg Nonres Bldgs +1.35%, School +1.4%, Office +1.6%, Healthcare +2.91%.
Inputs Table updated 2-15-25 Jan’25 Inputs are up, +0.8% to Nonres, +1.2% to Residential and 1.2% to Highway, the largest increases since Jan’24. The largest Input item increases in January are Paving Mixtures (up 14.6%), Diesel Fuel (up 3.6%), Concrete Brick, Block & Pipe (up 2.2%), Copper & Brass Shapes (up 1.9%) and Flat Glass (up 1%). Steel Pipe & Tube is down 1.3%. Both Lumber/Plywood and Fabricated Structural Steel are down 0.5% or less.
In the quarterly percent change table you can see the drop in Q3’22 and more in Q4’22, a sharp change in the rate of inflation. This shows up as expected in lower average of Inputs to Res and NonRes for 2023.
2-15-25 PPI Materials Inputs for 2024 to Residential are up 1.7%, to Nonres Bldgs are up 0.6% and to Highway are up 0.5%.
In all three of these Inputs PLOTS, the materials plots above and this Summary plot, so far Q1’25 is only Jan. It will wiggle around for 2 more months.
A General construction cost index or Input price index doesn’t track whole building final cost and does not capture the full cost of inflation in construction. Final cost indices represent total actual cost to the owner and are often higher than General indices. Producer Price Index (PPI) INPUTS to construction reflect costs at various stages of material production, generally do not represent final cost of materials to the jobsite and do not include labor, productivity or margins. PPI Final Demand indices include all costs and do represent actual final cost to the Owner.
PPI Construction Final Demand Indices
PPI Final Demand indices should not be referenced monthly. These are quarterly indices. PPI Final Demand Indices are for Nonresidential Bldgs only. Every three months (Jan, Apr, Jul, Oct) BLS performs an update survey to correct the PPI Final Demand indices for the current month and the previous two months. For more than two years, in most quarters, about 80% to 90% of the change in the index for the quarter was posted in the update month. In some quarters, growth is flipped from negative to positive in the update month. And still in other quarters the correction month doubles or halves the rate of growth. January data (released in Feb) is an update month. The PPI Final Demand for Jan. is basically the correction for Nov.+Dec.+Jan. The index should NOT be compared mo/mo. Compare qtr/qtr, but make sure to use the correct update month with two other months, (Nov+Dec+Jan)/(Aug+Sep+Oct).
Due to the nature of the PPI Final Demand Index, (2 monthly readings from model then every 3rd month correction by contractor survey), the correction month for 5 of the last 8 quarters flipped the sign of the modeled months. In 2 of the remain 3 months the correction months more than doubled the rate of change for the previous 2 months. There is no other proof needed to convince you to take care when using this index. Get it right.
2-15-25 The PPI Final Demand table below is updated to JAN 2025 data.
PPI data FINAL DEMAND Apr closes out Q1.
Q1’25/Q4’24: Avg Nonres Bldgs +0.6%, School +0.4%, Healthcare +2.2%.
YTD25/avg24: Avg Nonres Bldgs +1.35%, School +1.4%, Office +1.6%, Healthcare +2.91%
Jan is the correction month for Q4, so the Jan 2025 value closes out the 4th qtr 2024. Most bldg types and contractors are up in the 2nd half 2024 from the 1st half, but cost growth has been nearly flat. If extended, the trend leading into 2025 is for slow inflation growth. However the Roofing trades are increasing at a slightly faster rate than all others.
Due to the nature of the PPI Final Demand Index, (2 monthly readings from model then every 3rd month correction by contractor survey), it is not uncommon that the contractor survey correction month flips the sign of the modeled months for the quarter.
In 2023, for each quarter, we see two months posted positive, then a large negative value for the correction month. The negative correction is large enough in all cases to turn the entire quarter negative. Here’s an example: for the period May-Jun-Jul, Jul is the correction month. PPI values were +0.09%, +0.02%, -1.23%. The average for each of the 3mo is -0.37%, (the sum of the 3 months divided equally. The May and Jun values that were originally posted based on modeling flipped from + to – after the contractor survey value is applied to the QTR. That highlights why PPI Final Demand indices should not be referenced monthly.
However, these declines are from such a high mark at the end of 2022 (we began 2023 up 11%), that the rate as we began 2024 is still up 6% to 7% from the average in 2022.
9-5-25 Q2 Final Demand Index closed out with this July data. Both Table and Plot are updated.
SEE ALSO PPI Data Sept’24
Construction Analytics Building Cost Indices and Reference Indices
2-21-25 Current and predicted Inflation updated to Q4’24
- 2022 Rsdn Inflation 15.8%, Nonres Bldgs 12.8%, Nonbldg Infra 17.3%
- 2023 Rsdn Inflation 2.5%, Nonres Bldgs 5.6%, Nonbldg Infra 6.3%
- 2024 Rsdn Inflation 3.0%, Nonres Bldgs 3.2%, Nonbldg Infra 3.4%
Since 2011, Nonres Bldgs inflation is 4.8%, Residential is 5.4% and Non-bldg is 4.3%.
2-21-2025 Inflation Forecast, Nonres Bldgs +4.0%, Residential +4.7% and Non-bldg +4.0%. (This is a pre-tariff forecast.)
5-15-2025 Inflation Forecast, Nonres Bldgs +4.4%, Residential +5.0% and Non-bldg +4.3%. (This is a preliminary tariff forecast.)
9-3-2025 Inflation Forecast, Nonres Bldgs +4.4%, Residential +4.7% and Non-bldg +4.0%. (This is a preliminary tariff forecast.)
10-17-2025 Inflation Forecast, Nonres Bldgs +4.2%, Residential +3.8% and Non-bldg +4.0%. (This is a preliminary tariff forecast.) These October revisions are NOT yet carried into the tables and plots. Only Residential changed considerably, however, it is the most dependent on government data, which is currently not available. The biggest change is in the Census Bureau Lasperyes Index, a constant quality residential new build index, which now includes August data and both June and July were revised down slightly.
The following Construction Inflation plot (for Nonresidential Buildings only) shows three elements: 1) a solid grey bar reflecting the max and min of the 10 indices I track in my weighted average inflation index, 2) a solid black line indicating the weighted average of those 10 indices, and 3) a dotted red line showing the Engineering News Record Building Cost Index (ENR BCI). Notice the ENR BCI is almost always the lowest, or one of the lowest, indices. ENR BCI, along with R S Means Index, unlike final cost indices, do not include margins or productivity changes and in the case of ENR BCI has very limited materials and labor inputs.
Most of the tables and plots here are cumulative indexes. Construction Inflation annual percents for the three major sectors, Residential, Nonresidential Bldgs and Non-building Infrastructure, are recorded in this short table, Escalation form Prev Year. Useful to compare to last year, but you would need to mathematically do the compounding to move over several years.
Final cost indices represent total actual cost to the owner and are generally higher than general indices. Producer Price Index (PPI) INPUTS to construction reflect costs at various stages of material production, generally do not represent final cost of materials to the jobsite and do not include labor, productivity or margins. Even with that, a PPI Inputs index +20% for a material could be only a +5% final cost. PPI Final Demand indices include all costs and do represent actual final cost. The solid black line (above) represents the Construction Analytics Building Cost Index for Nonresidential Bldgs and is a final cost index.
9-3-25 Although the PPI data was all updated, as of yet it does not have a big effect on inflation. Some slight increase is built into my inflation to account for PPI increasing in the 2nd half. The inflation tables do not yet need an update. Inflation tables will be updated soon.
2-21-25 All index tables and plots updated to Q4’24. NOTE: all prior index tables were set to base year 2019=100. All these updated tables are set to base year 2024=100.
All of the Index Tables and the plot below, Construction Analytics Building Cost Index, show the cumulative inflation index, or the cumulative compounded effect of inflation for any two points in time.
How to use an index: Indexes are used to adjust costs over time for the effects of inflation. An index already compounds annual percent to prevent the error of adding annual percents. To move cost from some point in time to some other point in time, divide Index for year you want to move to by Index for year you want to move cost from, TO/FROM. Costs should be moved from/to midpoint of construction, the centroid of project cost. Indices posted here are at middle of year and can be interpolated between to get any other point in time.
The three yellow highlighted lines in the index tables are plotted here. The three major sectors, Residential, Nonresidential Buildings and Non-building Infrastructure,
This table and plot is an extension of the tables and plots above. Data is as of Q4 2023, but the table covers from 1967 to 2000. Data is pretty sparse.
Non-building Infrastructure Indices
In the Index tables above, dividing the current year by the previous year will give the current year’s inflation rate. All indices are the average rate for the year.
Also, in the tables above, all reference indices data is gathered from the original source, then all are normalized to a common base, 2019 = 100. This allows us to see how different indices compare.
Comparison of Indices
This plot compares four final cost indices and three inputs cost indices. Prior to 2020 there is a lot of symmetry in the final cost group. Everything changed after that.
Previous year Construction Inflation 2024 – last updated JUL 2024 – BASE 2019=100
SEE ALSO Tariffs Create Unknown Costs to Construction
Links to Data Sources Construction Inflation >>> Links
Outlook 2025 CONSTR OUTLOOK 2025 Feb 2025
Links to Explanations of PPI Index PPI Explanation provided by AGC
Construction Briefs – As We Begin 2025
We are close enough, now in mid-January, to see where the numbers will end up for 2024. Construction spending as of Nov is up 6.5% year-to-date vs same 11 months in 2023. We are up 6.0% ytd vs the average of 2023. My forecast predicts we end 2024 up 6.2%, but growth is only 3.4% in 2025.
In February of 2024, with the Dec 2023 data in hand, my forecast for 2024 spending was $2,190 billion, only 1.8% higher than my current (Nov’24 data) forecast of $2,150 billion. Most of that early higher estimate was due to what I carried for my residential forecast, which I have since lowered by 3.6% from the initial forecast at the beginning of 2024. You can see in this monthly summary table that the Nonresidential Bldgs and Non-building forecasts have varied very little and the Total forecast has not varied up or down by more than 0.4% over the last 4 months.
edit 2-3-25 updated table to include Dec data. See the line comparing actual to the SEP data forecast.
Single family construction spending reached a post-2006 high in Q4’21 thru Apr’22 ($480bil). From Apr’22 to the lowpoint in May ’23 ($360bil) spending dropped 25%. By year-end 2023 it had recovered almost 3/4ths of that drop. It fell again in mid-2024 to $410bil, but has since recovered to the year-end’23 level ($450bil). That drop is reflected in the difference between the current forecast and the earlier forecast.
NAHB – Cost of Constructing a Home 2024 excellent summary www.nahb.org/-/media/AB4E…
Construction spending in 2024 will hit near $2.15trillion, another new high, up 54% since 2019.
Caution: the following table, showing Constant$ analysis, now shows Constant$ with base year at 2024. Since Q1-2020 I have used the base year at 2019. This update changes the Constant$ amount, but not the Constant$ percent growth. Slight changes in prior years inflation resulted in some minor changes in Constant$ growth.
The last time construction spending declined was 2011. But construction spending includes inflation, which adds nothing to the volume of work put-in-place. Construction volume, (spending minus inflation) will finish the year up only 10% since 2019.
My construction spending forecast for 2025 Nonres Bldgs is down 0.7%. But it’s driven by projects ending in Manufacturing (and Warehouse). In the last 3 yrs, there were $230bil Mnfg starts, most in 2022, $130bil above normal, now some are ending. Without Mnfg, nonres bldgs 2025 spending would be up 4.5%. So while outward appearance may be that nonres spending is declining, in large part it is due to mega spending on Manufacturing buildings (and Warehouse) tapering down upon completion, creating very large annual declines, but normal. See The Manufacturing Spending Taper
Last year at this time, many of the Nonres Bldgs and Non-bldg line items showed Nov-Dec spending was already several points higher than the 2023 average. This was an indication leading into 2024 that those markets were on track to start the year already up. This year,most markets show a decline from the 1st half of the year into the 2nd half. Two notable declines are Warehouse and Office w/o Data Centers. Both start 2025 down 5%+ from the average in 2024.
I didn’t realize how much impact there was with the inclusion of (increasing) Data Centers in the (decreasing) Office construction spending values. I’ve now separated Data Centers from Office and Warehouse from Commercial/Retail. Office spending was pretty strong near it’s highs until 2h’22. Early in ’24 it had fallen to 8%-12% below ’22. Office spending is now 15%-18% below 2022. On the other hand, Data Center spending as of Nov is up 30% from the same months in 2023, and is up more than 60% above the average of 2023 and 120% above 2022. It will continue to increase into 2025.
In 2014-2015, Data Centers was less than 5% of total Office+DC construction spending. Today it is approaching 30%. Next year it will approach 40%. In 2015, Warehouse was 25% of total Commercial spending. By 2022 it had climbed to 54%. In 2025, it will fall back to 45%. Warehouse spending is now decreasing after climbing 100%+ since 2019.
Dodge reports as of Nov construction starts for 2024 up 5% YTD. Residential starts up 7%. Nonresidential Buildings starts up 4%. Non-building starts up 5%.
Construction Jobs do not get compared to construction spending. Spending includes inflation, which adds nothing to business volume. Compare jobs growth to Volume growth.
Construction Jobs counts here are the average for the year. That accounts for months during the year, other than Dec/Dec, with higher (or lower) percentage of yr/yr growth. For instance, total jobs Dec24 vs Dec23 increased only by 196k jobs or 2.4%. If you based annual growth on Dec/Dec, it would indicate 2024 increased by 2.4%. However, during the year, jobs growth in Mar-Apr-May were all greater than +3% compared to same month prior year. In fact, every other month during the year had a higher yr/yr growth rate than Dec/Dec. Yearly average of all 12 months shows total jobs annual average up 226K or 2.8%.
Dec/Dec shows a snapshot in time of one month compared to same month last year, without taking into account what might have happened in any of the other 11 months. YR24avg/YR23avg shows the change in the number of jobs over the whole year and accounts for all activity in the year.
Jobs 2024 AVG thru DEC. Rsdn+61k +1.9%. Nonres Bldgs+134k+3.7%. Nonbldg +29k+2.6%
Construction Volume AVG thru NOV Residential +2.9% Nonres Bldgs +3.3% Nonbldg +4.3%.
From 2012-2019, we added a yearly average 245,000 jobs/yr. In 2024 we added 226,000 jobs, but from 2021-2024, we added an average of 247,000 jobs/yr. We add the most jobs in Feb and Mar. We add the least jobs in Apr and Jun. We add more jobs, by far, in the 1st qtr. than any other qtr.
Don’t be surprised if 2025 construction jobs growth slows a bit. Jobs are slightly ahead of volume growth. Since 2019, both Jobs and Volume increased 10%. But that includes 2020, when volume increased 4% but jobs fell by 250k, or 3%. Over the period of 4 years 2021 thru 2024, Jobs increased 13%. Volume of work increased only 6%.
The unemployment rate in construction goes UP in the 1st qtr every year, by 2% to 3% (data since 2011). Now, your 1st thought may be, if unemployment is increasing, that is probably because jobs are falling. Well, construction has ADDED jobs in the 1st qtr. every year since 2011 (excluding 2020), by an avg of nearly 30% of all jobs added annually. More recently, since 2020, we’ve added almost 40% of total annual jobs in Q1. Construction unemployment is not going up in winter months because we lose jobs in winter. So how can the unemployment rate still go up? There’s only one number left in the equation. It goes up because the entire workforce increases by greater than the number of jobs added.
For an example of how this employment timing information can be useful see Employing Correlation – Using construction industry employment data as a proxy for flatbed demand
Harvard Joint Center for Housing Studies posted that In Texas, California, New Jersey, and the District of Columbia, immigrants make up more than half of construction trade workers.
Nov PPI for Construction Mtrls little changed from Oct Inputs YTD to Nonres +0.6%, to Rsdn +1.7%, to Hiway +0.6% Concrete products up 6%, Steel products down 7%-8%, Lumber/Plywood down 2%, Copper up 6%, Diesel down 14%. Final Demand YTD (all in) Nonres Bldgs all up 0.5% or less. Trades up 1%-2%.
We can’t always tell what affect changes in the cost of construction materials will have on the final outcome of annual construction inflation. PPI materials index does not account for productivity or margins and varies on stage of input. A good example of stage of input is PPI for Steel Mill Products. That does not include delivery from mill to fabricator, detailing, fabrication, shop painting, delivery to jobsite, shakeout, lifting, installation and finally overhead and profit, in all about 75% of the cost of structural steel installed.
Construction Analytics Nonres Building Cost Index is a weighted average of eight final cost indices.
NAHB estimates that $184 billion worth of goods were used in the construction of both new multifamily and single-family housing in 2023 and that $13 billon of those goods were imported. eyeonhousing.org/2024/12/impo…
Steel Statistics Cost Increase Effect on Construction? written 2016 US is world’s largest steel importer at 30MMT/yr. 50% from our top suppliers, Canada, Brazil, South Korea and Mexico. China supplies less than 2%. The U.S. annually imports about $2bil from Mexico.
One quarter of all annual Brussel Sprouts consumption occurs around the Christmas holiday.
Construction Analytics 