Construction input costs surge as conflict unwinds, labor still scarce

The U.S. and Iran have struck a preliminary deal to end the war, but the construction industry is still paying for it. Data released last week by Associated Builders and Contractors and Associated General Contractors of America show the largest year-over-year hikes in construction input costs since the pandemic. The conflict is winding down. The cost curve is not.

This is the lag that matters. Material costs spiked during the conflict—steel, copper, fuel—and those contracts were locked months ago. Builders are paying March prices in June. The diplomats have moved on. The project managers have not.

But the material story is only half of it. The labor half is harder to solve. Skilled construction labor was already tight before the conflict. Quits in construction have stayed elevated, not because workers are angry but because they can leave. JOLTS data for Q1 showed construction openings per hire running at 1.3—higher than the national average, higher than manufacturing, higher than retail. You can't outbid scarcity with a headline.

The cities feeling this most are the ones that bet on industrial reshoring and infrastructure spending—Phoenix, Austin, parts of the Carolinas. They need electricians, pipefitters, crane operators. They are competing with data center builds, with semiconductor fabs, with each other. The wage pressure is real, but the wage pressure is not solving the headcount problem. You can't train a journeyman electrician in six months, and the labor market knows it.

Watch the upcoming JOLTS release for construction sector openings and hires. If the ratio stays above 1.2, the cost hikes are structural, not cyclical. If quits stay elevated, the wage floor is rising again.