How Will Construction Face Its Third Margin Squeeze In a Decade?

For the third time in a decade, material price increases are substantially outpacing bid prices.

The latest occurrence has been exacerbated by persistent wage growth in the construction industry and a tight labor market. Despite being in the typically slower winter construction season, when labor demand is lower, the current unemployment rate of 4.1% remains well below the 25-year average of 8%.

This combination of rising costs threatens to compress contractor margins once again, echoing painful lessons from the recent past.

Lessons from Recent History

Recent history has shown us the consequences of contractors being caught off guard by rapidly rising prices. In 2018, construction material prices surged as steel and aluminum tariffs drove up costs for critical materials. At their peak in mid-2018, total construction material prices rose by 8% year-over-year, while bid prices increased by just over half that rate.

Contractors locked into fixed-price contracts found themselves squeezed between their commitments to clients and the reality of escalating input costs, leading to widespread profitability erosion across the industry.

The next margin squeeze came during 2021 and 2022, when supply chain disruptions caused by COVID regulations created a severe imbalance between demand and supply. Government stimulus programs inflated demand, while global supply chains struggled to recover, resulting in unprecedented price volatility.

Once again, rising costs ate into contractor margins, causing significant financial strain.

The Current Margin Squeeze

In the current round, bid prices are rising by nearly 2.7%, far below the rate of wage and material cost increases. Construction wage growth has hovered around 4% since the COVID era and remains at that level, with specialty contractor wages growing even faster.

For the third time in a decade, material price increases are substantially outpacing bid prices. Image: ConstructConnect  

Supply-side wage pressures are worsening as unauthorized workers are removed from the U.S. labor force, further tightening an already constrained labor market. Meanwhile, material prices have risen sharply in 2025, driven by new tariffs. As of the latest reporting, material prices are over 5% higher than a year ago.

A Tough Question for the Industry

This combination of faster-rising wages and material costs means that approximately 70% of a typical project’s total expenses are increasing substantially faster than bid prices. As the industry faces its third margin squeeze in a decade, the pressing question remains: how long can contractors endure the pain of shrinking profitability?

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