ESCALATION FORECAST
What do current market conditions mean for our escalation forecasts?
Escalation inputs are pulling against each other. Costs are re-accelerating while demand cools, and labor is not loosening with it. The trends beneath our forecasts:
Current activity – Spending is 3.1% below prior-year levels and weaker in real terms, with residential falling alongside private nonresidential.
Capital – The funds rate has held 3.6% since December's cut, and renewed inflation defers the next one.
Materials cost and availability – The composite hit 10.7% year-on-year in July, with the diesel PPI up 46.3% on that same basis, and Section 232 metals running 7.0% -20% across Q2.
Labor – The construction labor force is expanding again after a down year from 2024-2025; opening have increased every month since March.
Machinery and equipment – Cooled to 2.6% year-over-year, with cranes and forklifts negative. The fleet-cost risk is fuel.
Trade policy – Section 232 metals duties remain in force and visible in prices, August's 50.0% duties on Canadian plywood, engineered wood and cement add a second front, and the conflict premium is a volatile layer on top of both.
We have raised our 2026 bid-price escalation estimate to 4.75%, from 4.25% last issue, with 2025 closing at 4.0%. The increase is about cost, not volume. Every input above except equipment is running faster than it was six months ago, while the volume that would normally discipline pricing is not there. Bidders are pricing their inputs before they price the slack in the market.
For 2027 we forecast 4.5%, as the energy premium partially unwinds but a smaller workforce and data-center demand keep costs rising. By 2028, escalation settles to 4.0% as the energy premium fully unwinds and public volumes level off. Labor scarcity is what holds the floor up, and it will not ease with demand.
Source: Turner & Townsend
These forecasts are representative for the US as a whole and escalation may vary by project size, value, procurement route and state. Projects do need to be assessed on an individual basis and may not always align to our published figures. For further assistance with cost assurance and escalation analysis in your area, please contact Turner & Townsend. Note: Escalation figures do not price in the full impact of proposed tariffs.
A +/- 3.0 percentage point allowance is provided to allow for policy variability across the forecast horizon.
Source: Turner & Townsend
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