CONSTRUCTION INPUT COST ANALYSIS

Construction wages regain purchasing power

Construction wages have pulled ahead of consumer price inflation after a period of being eroded by rising prices. Figure 8 displays how wages have climbed steadily over the past decade, but when inflation spiked in 2021–2022, it briefly outstripped pay increases. By 2023–2024, however, inflation cooled, and construction pay kept rising at 4–5 percent annually. As a result, real construction wages improved, and workers are earning more in inflation-adjusted terms now than before the pandemic. Rising construction wages boost workers’ spending power and could draw more labor into the sector, but they also raise project costs and may feed broader inflationary pressure if productivity does not keep up.

Source: BLS

Labor shortage eases but remains historically tight

Construction vacancies remain historically tight, though they have cooled from 2022’s extremes. The ratio of job openings to unemployed construction workers peaked near 1.0 (one vacancy per available worker) in 2022, notably higher than the pre-and post-COVID average of 0.25 and 0.65, respectively. With a ratio of 0.54 in Q2 2025, labor tightness has eased from the previous quarter and is now aligned with its 10-year average of 0.56.

While recent demand easing has provided modest cost pressure relief, which suggests hiring may have caught up or project activity has cooled, labor availability remains a challenge. Any renewed upswing in construction would likely reignite worker shortages and upward pressure on bid prices.

Source: BLS

Using location and labor quotients to assess relative labor supply and wage cost premiums

Location quotient (LQ):

Location quotients are relative measures. An Employment LQ above 1.0 tells you that construction is a bigger slice of the local workforce than it is nationwide; it does not reveal how many workers are on the ground. The same applies to Wage LQ: a ratio above 1.0 means construction wages run higher relative to the US average for that trade. Local pay can still look ‘cheap’ or ‘expensive’ in dollar terms once cost of living and other industries are considered. A high ratio does not guarantee scale or high dollar pay; it simply shows how construction wages stack up within that economy.

Why it matters:

Pairing the two ratios offers a fast scan of labor conditions. High-high markets point to tight capacity and premium pricing in that location; high employment but mid-range wages suggest depth that could tighten if demand spikes; balanced ratios imply conditions close to the national norm; and low-low territories tend to have lower relative costs but may struggle to scale up quickly.

Tight and costly: Emp LQ > 1.20; Wage LQ > 1.10; specialized market; limited slack and higher cost risk.
High activity, fair cost: Emp LQ > 1.20; Wage LQ 0.95-1.10 large share of construction jobs, relative wages near national norms; costs can rise if demand accelerates.
Balanced market: Emp LQ 0.90-1.10; Wage LQ 0.90-1.10. labor mix and pay track the US average, predictable supply and pricing.
Pay-led scarcity: Emp LQ 1.00-1.20; Wage LQ > 1.10. average depth, but wage premium hints at pockets of scarcity.
Low-intensity, low-cost: Emp LQ < 0.90; Wage LQ < 0.95. smaller construction footprint relative to other industries within that market; potential schedule risk for large builds despite cost upside.

Sunbelt metros boast high construction capacity

Fast‑growth Sunbelt and Mountain metros such as Austin, Phoenix, Tampa and Raleigh sit in the tight and costly quadrant, where construction represents at least 20 percent more of their workforce than the US average, and relative wages run 5–15 percent higher. These figures flag pressure, not guaranteed capacity. A smaller metro can post an Emp LQ of 1.3 yet have fewer than 90,000 workers, insufficient for a mega‑project without importing crews.

Source: BLS

Looking at figure 11, ‘Mega-hub’ metros (e.g. New York, LA) have large absolute construction employment (>200k workers) despite low relative concentration, meaning they can support very large projects even with modest LQs. Smaller markets under 50k construction jobs (‘Low-Scale’) may face schedule risks for mega-projects despite a higher concentration of skilled workers.

Mega hubs: > 200 thousand jobs; deep labor pool; even a modest LQ can support very large projects.
Mid-scale: 50 thousand–200 thousand jobs; Emp LQ > 1.15. Capacity is project specific; higher Employment LQ (> 1.15) signals tightening costs.
Low scale: <50 thousand jobs; thin workforce; schedule risk for large or specialized work, regardless of LQ.

Source: BLS

Tariff impacts start to bear down on material costs

Construction material costs rose sharply in Q2 2025, climbing by 3.1 percent, marking the highest quarterly increase since Q3 2022 and the second consecutive quarter of growth. Costs for steel and metal related materials have increased the most, as steel and aluminum tariffs were doubled in early June. Copper related inputs experienced notable price gains due to ongoing levies on Canadian imports, tariff speculation and limited new mill capacity in South America. Copper prices are expected to increase based on the latest announcement of a new 50 percent tariff on copper imports, which began August 1st, 2025. Asphalt paving costs plunged nearly 20 percent quarter-on-quarter, driven by seasonal drops in oil prices and improved refinery output. Tariff policy and commodity swings should keep contractors alert to sudden price shifts.

Source: BLS

Machinery and equipment costs are finding balance

Construction machinery and equipment prices in Q2 2025 inched up 1.3 percent quarter-on-quarter well below the 3.8 percent gain recorded in Q2 2024 and a far cry from the double-digit spikes of 2021-2022. Momentum has drained from most categories: crane prices were flat, forklifts slipped 0.3 percent and excavator costs fell 4.5 percent as overall construction demand has cooled. The lone outlier is generator equipment, where prices climbed 6.1 percent on ongoing data-center buildouts and persistent pressure on engine components. Barring a fresh surge in diesel prices or continued escalations in steel tariffs, heavy-equipment inflation appears to be contained heading into the second half of 2025.

Source: BLS