Construction escalation has tempered slightly yet bid price growth continues to increase. This means that escalation is not falling and bid prices (on average) are not lower than what they once were – they are still rising. Factors informing our escalation forecasts are:

• Current activity – The US economy is cooling, and its construction industry is softening. Growth is still prevalent, but variable by sector and location.
• Leading indicators – data trends downwards and confidence is constrained, although construction permits have improved.
• Materials cost and availability – global commodity and freight costs are amplified, but domestic costs and lead-in times have settled amidst softer demand.
• Workforce – skills shortages persist, and wage gains remain elevated. The labor market is not as tight as it once was and that should edge down earnings growth over time.
• Machinery and equipment – little change other than small reductions easing some price pressures. Key items remain scarce and costly.

Price pressures are still prevalent across the US construction industry but are softer than before and several factors are now moving in a downward direction with a fraction more intent. As a result, our forecast for 2024 has crept down slightly to 3.25 percent – a notch below the 3.5 percent predicted in Q2 2024.

Our bid price forecast for 2025 remains the same, with escalation set to increase by 2.5 percent. Lower interest rates, steadier input cost increases, and softening demand growth should help the construction industry perform at a reasonable pace.

Looking ahead to 2026, escalation expectations continue as they were with an assumed 3.0 percent increase. Recent market jitters are likely to be an overtly pessimistic view on the state of the US economy and a soft landing is still the main scenario that our forecasts follow. However, with amplified market volatility and a growing chance of a hard landing, the margin for error has increased to +/-2.5 percentage points around the baseline prediction.