The construction industry is facing a cost storm that industry economists say could bring major projects to a standstill — and the numbers driving that alarm have not yet absorbed the latest blow from global markets.
On Wednesday, the Associated Builders and Contractors (ABC) released its monthly analysis of U.S. Bureau of Labor Statistics Producer Price Index data, revealing that construction input prices rose 1.3% in February alone, pushing the annualized rate for the first two months of 2026 to a jarring 12.6%.
Nonresidential construction bore the brunt, with input prices climbing 3.7% year-over-year.
The figures alarmed economists and industry leaders not just for what they show — but for what they don’t.
The data predates the Iran conflict that began February 28, a war that has since sent oil prices spiraling toward $100 per barrel.
Energy Leads the Charge
Every energy category tracked in the report posted increases in February. Natural gas prices surged 10.9% month-over-month, unprocessed energy materials climbed 6%, and crude petroleum rose 4.7%.
These are inputs that touch virtually every phase of construction — from powering machinery and transporting materials to heating job sites and manufacturing components.
The commodity-level figures are particularly striking. Since February 2025, natural gas prices have risen 30%, copper wire and cable costs are up 27.1%, and steel mill products have climbed nearly 21%.
Iron and steel posted a double-digit increase of 15.3% over the same period. These are not peripheral materials — they are foundational to every major commercial, industrial, and infrastructure project across the country.
A Tariff-Driven Buildup
The February numbers did not arrive in isolation. January’s ABC report had already flagged a “blistering” 7.1% annualized surge in nonresidential construction input prices, driven substantially by tariff-affected materials.
Copper wire and cable, iron, steel, and industrial controls equipment led that month’s increases — a pattern the ABC and the Associated General Contractors of America (AGC) have tied directly to import duties on metals and manufactured goods.
According to Ken Simonson, chief economist at the AGC, steep tariffs on imported metals are allowing domestic suppliers to push up prices across the board — a dynamic that is spreading well beyond products directly subject to duties.
The AGC has urged federal officials to renew key infrastructure measures, including the surface transportation bill, to give domestic suppliers the demand certainty needed to expand production and offset some of the cost escalation.
Forward-looking risk
Wednesday’s report does not yet reflect the impact of oil prices surging toward $100 per barrel following the onset of the Iran conflict on February 28. ABC chief economist Anirban Basu flagged this explicitly, warning that the data represents a floor, not a ceiling, for cost pressures.
When Does It Break?
The question industry leaders are now wrestling with is not whether costs are rising, but how much further they can climb before project owners pull back. Jeffrey Shoaf, CEO of the AGC, put it plainly: there is a limit to how many price increases the market can absorb before owners put projects on hold.
“The disruption of oil, natural gas, and aluminum supplies from the Middle East is pushing up construction costs further and causing owners to delay projects.”KSKen SimonsonChief Economist, Associated General Contractors of America
According to ABC’s own Construction Confidence Index, fewer than one in four contractors currently expect their profit margins to shrink over the next six months — a figure that reflects surprising resilience in industry sentiment.
But Basu cautioned that this optimism has not yet been tested by the most recent data. “Those expectations will bear close monitoring if input prices continue their rapid ascent,” he said.
The risk is not symmetrical across project types. Publicly funded infrastructure and energy-related construction may prove more durable, insulated by committed federal dollars and long-term demand.
The most exposed sectors are commercial development and multifamily residential construction, where project economics are tightly tied to financing rates, absorption assumptions, and owner budgets that cannot be easily restated mid-project.
The Bigger Picture
Wednesday’s ABC report is the latest chapter in a cost escalation story that has reshaped construction economics over the past five years.
Input prices have climbed 45.3% since February 2020, the final month before the COVID-19 pandemic triggered the first wave of supply disruptions.
The industry spent much of 2023 and 2024 stabilizing, only to find itself confronting a new convergence of pressures: tariff-driven commodity inflation, Middle East energy instability, and a Federal Reserve that has kept borrowing costs elevated.
Contractors who locked in fixed-price contracts before the current surge may find themselves absorbing losses.
Those negotiating new agreements face the harder task of pricing in uncertainty without pricing themselves out of projects that clients are already scrutinizing more closely.
What comes next will depend significantly on forces outside the industry’s control — the trajectory of the Iran conflict, the scope and duration of U.S. trade policy, and whether Congress acts on the surface transportation bill before current authorizations lapse. Until those questions resolve, the construction sector is building on uncertain ground.
Source: Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics Producer Price Index data, released March 19, 2026.
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