Cost escalation has caused many clients to become increasingly cautious about pressing ahead with projects and programs. Build America Buy America legislation has amplified material costs, persistent skills shortages have enlarged construction wages and other regulation barriers can enhance costs further, limiting spending growth. Even with the Infrastructure Investment and Jobs Act (IIJA) in play to stimulate the market, the lag between commitment and action amidst presidential election uncertainty is likely to be causing spending delays.

Manufacturing is still a bright spot, with spending increasing by 4.3 and 19.7 percent on the quarter and year in Q2 2024, respectively. Expenditure has been driven by demand in the computer/electronic/electronical sub-sector, which now accounts for almost three-fifths of manufacturing growth as of Q2 2024.

The sub-sectors' spending increased by c.1,400 percent since Q4 2019, helped by the CHIPS and Science Act, with growth in semiconductor facilities leading the charge. Although that acceleration has started to normalize, albeit still high, growth has increased by 29.5 percent on the year in Q2 2024 as demand for electric vehicles (EVs) soften.

Monthly data, however, shows overall construction spending to have fallen in the last two months of Q2 2024, with the residential market notably influencing that contraction. Persistently high interest rates and low disposable incomes have adversely affected the housing market, even with a shallow housing stock and a shortage of homes. Despite monthly metrics tending to be less reliable and changeable compared to quarterly data, it is clear the construction sector is weakening which will have a knock-on effect on input costs and bid price escalation.