The U.S. construction industry is confronting its third major margin squeeze in the past decade as material and labor costs continue to rise faster than bid prices, placing renewed pressure on contractor profitability heading into 2026.
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According to Construct Connect’s latest construction economy data, bid prices have increased by roughly 1%, while material costs have climbed more than 5% year over year and construction wages continue to grow at approximately 4%. Together, these cost increases are affecting nearly 70% of a typical project’s total expenses, significantly narrowing margins for contractors operating under fixed-price and competitively bid contracts.
The current squeeze mirrors earlier periods of cost imbalance that challenged the industry in 2018 and again during 2021–2022. In 2018, tariffs on steel and aluminum pushed construction material prices up by as much as 8% year over year, while bid prices rose at roughly half that pace. Contractors already committed to projects saw profitability erode rapidly as input costs escalated.
A second margin compression followed during the COVID-era supply chain disruptions of 2021 and 2022. Pandemic regulations and logistics bottlenecks collided with stimulus-driven demand, producing extreme price volatility across materials markets. Once again, contractors struggled to absorb higher costs while maintaining contractual obligations.
Today’s conditions combine elements of both previous squeezes. Material prices have risen sharply in 2025, driven in part by newly implemented tariffs, while wage growth remains elevated due to a tight labor market. Even during the slower winter construction season, the construction unemployment rate stands at 4.1%, far below the 25-year average of 8%.
Labor pressures are being further intensified by workforce constraints, including the removal of unauthorized workers from the labor pool, which is tightening supply at a time when demand for skilled trades remains strong. Specialty contractor wages are increasing even faster than industry averages, adding another layer of cost pressure.
With material and wage inflation continuing to outpace bid growth, contractors face difficult decisions around pricing strategies, risk allocation and project selection. The ongoing imbalance raises a critical question for the industry: how long firms can continue to operate under shrinking margins without adjusting contract structures or reducing exposure to volatile cost environments.
ConstructConnect analysts note that understanding cost trends, regional pricing data and labor market conditions will be essential as contractors navigate this latest margin squeeze. The company’s Construction Economy Snapshot provides additional insights into construction starts, regional activity and forward-looking indicators that may shape market conditions in the months ahead.
Originally reported by Michael Guckes, Chief Economist in Construct Connect News.
