U.S. market intelligence: a pivotal moment

There are many unknowns heading into 2025 that may change the trajectory of the construction industry and bid prices. Further rate cuts, combined with a positive “return to office” trend, could stimulate growth in the construction market. This is influencing business decisions on workspace needs, along with ongoing conversations about the future of the workplace.

In summary, there is optimism in the U.S. construction market against a backdrop of change and uncertainty.

Input costs growth continues to soften 

Materials

Construction material costs have decreased as demand has cooled. Structural steel and lumber have declined from the highs of 2022. In addition, supply chain conditions improved overall in 2024, with the main exception being electrical items such as copper cable, panels, transformers, and switch gears.

Looking ahead to 2025, the incoming presidential administration has continued to signal potential increases in tariffs on imports. If implemented, these tariffs could put upward pressure on material costs.

Labor 

The tight labor market showed further signs of easing this quarter. Slower demand and moderated inflation have tempered construction wage growth. While labor availability improved this quarter, skilled labor remains an ongoing concern for many firms.

What do current market conditions mean for our escalation forecasts?  

Construction escalation pressures are not as strong as they once were, with bid price growth increasing at a slower pace. Isolated hot spots remain, but tenders are becoming more competitive, with spreads narrowing and the number of submissions increasing. However, escalation has not yet declined overall—growth rates have simply softened.

Factors informing our escalation forecasts are: 

• Current activity: the U.S. economy is on track for a soft landing and resilient growth. Construction is less strong, depending on sector and location.

• Leading indicators: early trends suggest a slower start to 2025, with an uptick later in the year. Despite this, optimism remains.

• Materials cost and availability: Q3 2024 saw further reductions overall. Geopolitical risks may limit production cost reductions as companies increase risk allowances. Energy costs may add additional pressure.

• Workforce: wage growth is being tempered. However, skilled labor shortages persist, particularly for large projects and programs in high-demand sectors and locations.

• Machinery and equipment: costs continue to ease steadily. Growth should continue to trend downward as interest rate changes flow through to lease costs and/or financing for capital expenditure.