EXECUTIVE SUMMARY
Inflation returns as construction demand narrows
Growth slowed through the first half while inflation picked up, a challenging divergence for the construction sector. Conflict-driven energy costs held headline inflation above 3.0% from March onward, so the sector is taking rising input prices at the same time demand softens.
Construction spending is falling on both sides of the market. Total outlays in June were 3.1% below a year earlier, with private nonresidential and residential each down 4.7%. Public construction grew just 1.8%, a third of its 2025 pace, and power has overtaken manufacturing as the largest non-residential category.
The BLS construction materials composite rose 10.7% year-on-year in July, its fastest since 2022, after 8.9% in June. Fuel is doing most of that. The diesel PPI was up 44.0% in July, off an 80.0% peak in the second quarter, and Section 232 metals are still adding on top.
We have raised our national bid-price escalation estimate for 2026 to 4.75%, from 4.25% in our last issue. Demand is soft, but costs are setting prices. Materials are up 10.5% year-on-year, construction wages are up more than 4%, and the workforce is almost 3.0% smaller than a year ago.
In a nutshell
Quarterly GDP growth as of Q2 2026 (annual rate)
Quarter on year construction spending growth as of June 2026
Bid price inflation (escalation) estimate for 2026
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