The U.S. tariff divide

Materials  

The Supreme Court’s decision removes IEEPA-based reciprocal tariffs on many imported components and finishes, but the 50% Section 232 duties on steel, aluminum, and copper remain. A temporary 10% Section 122 surcharge now applies to all imports for up to 150 days.

Overall, this is a partial easing of trade pressures. Core metals like structural steel, aluminum, and copper still face steep tariffs. But many components, finishes, and mechanical items once hit by IEEPA rates should see meaningful cost relief in the coming months.

Labor 

Wages are outpacing inflation as the labor market stays tight. Construction wage growth moderated throughout 2025 but continued to outpace inflation. Average hourly earnings rose 3.8% year-on-year in Q4 2025 to US$40.26, easing from 4.4% in Q4 2024.

CPI growth ran at 2.8% over the same period, narrowing the real wage gap to under 1.0%, down from 1.7% a year earlier. Workers are still gaining purchasing power, which supports labor force retention. However, the narrowing real premium through 2025 suggests that the strongest period of catch-up has passed.

What do current market conditions mean for our escalation forecasts?  

The Supreme Court’s 20 February 2026 validation of IEEPA tariffs, combined with a cooling construction market, is reshaping the escalation outlook. Key trends informing our forecasts include:  

Current activity

Nominal spending continues to contract, with real output declining further after adjusting for cost increases. Public and utility-sector work carried volume while private activity softened.

Capital

Three Fed cuts have eased financing pressures but continue to weigh on private project starts.

Materials cost and availability

The BLS Producer Price Index (PPI) construction materials composite accelerated in Q4 at its fastest pace since early 2023, led by tariff-exposed metals. Non-metal inputs remained relatively flat to declining.

Labor

Wage growth moderated but is still outpacing inflation. The vacancy-to-unemployed ratio rose to 0.54 in Q4, suggesting modest improvement in hiring conditions.

Machinery and equipment

Machinery and equipment costs re-accelerated to 5.0% year-on-year, driven by generators and transformers.

Trade policy

The tariff environment continues to pose challenges for builders. The Associated General Contractors of America reports that two-thirds of contractors have seen at least one project postponed or scaled back.

In 2026, bid price escalation is expected to rise slightly from 4.0% to 4.25%, driven by trade realignment and persistent labor market tightness. However, market fundamentals are cooling: non-residential spending is flat, residential is down, and backlogs have fallen to a four-year low.

Conditions may remain firm enough to keep costs elevated, but not enough to drive meaningful acceleration.

In 2027, we’re expecting bid-price escalation to ease to 4.0%. A more stable lending environment will improve project feasibility, meaning the tariff picture becomes clearer and demand softens further. Labor availability will remain competitive, but conditions should improve.