2026 construction perspective

• Final-cost indices including margins are already running roughly 5% year-over-year; the November report's upper bound (~8%) has a meaningful probability of being reached in the second half of 2026.
• Tariff pass-through and geopolitically embedded energy costs are two independent cost channels moving simultaneously — neither is receding, and neither responds to the same policy conditions.
• Section 232 tariffs on steel, aluminum, and copper carry a permanent 50% rate with no statutory ceiling or expiration. The pending Section 301 excess-capacity determination could stack additional duties on top.
• Labor constraints are structural and geographically locked: 61% of U.S. metro markets are currently supply-constrained; that share rises to 72% by 2027.
• Both relief mechanisms from the November outlook are gone: the June FOMC signal moved to a potential hike (3.8% median year-end projection, up from 3.4%), and USMCA renegotiation does not reach Section 232 goods.
• Demand has bifurcated between data-center-adjacent work and everything else, creating a procurement window for owners whose programs don't compete for the same contractor capacity.
   

Construction costs through mid-2026 are running above the forecast range JLL established in November, with anticipated relief mechanisms gone from the outlook. The directional clarity that opened the year has hardened into a specific cost position: elevated baseline, open ceiling.

JLL's 2026 U.S. Construction Perspective mid-year update examines the escalation channels driving that position, the structural labor constraints compounding it, and where a procurement window still exists for owners prepared to act before it closes.

Final-cost indices including contractor margins are already running roughly 5% year-over-year, and acceleration is overdue for the second half of 2026. The breadth of cost channels driving escalation expanded beyond the November forecast, labor constraints proved geographically locked rather than cyclically recoverable, and the elevated cost floor the November report expected to partially offset by mid-year has instead persisted. The revised mid-year cost position sits above that baseline, with the ceiling still unresolved.

The November report set an upper bound of roughly 8% materials price growth for full-year 2026; current pacing through May, final-cost indices are already tracking above 5% year-over-year with a meaningful probability of reaching that ceiling. Pass-through that was slow to materialize through 2025 is now reaching project estimates, as metals, lumber, and equipment pricing continue to reflect exposure across multiple tariff regimes.

Recent tariff changes have not moved cost impacts uniformly up or down. Instead, they have redistributed pressure across project types. Changes effective in early June reduced tariffs on a separate set of machinery and equipment derivatives to a temporary 15-25% rate, but furniture parts, steel racks, and aluminum lithographic plates now face the same 50% tariff rate as structural steel and aluminum.

Materials inputs at the goods level are running +6.4% year-over-year against final-demand prices at +3.5%, a spread that has persisted for multiple quarters. Bid prices in the back half of 2026 will close that gap, as contractors have neither the desire nor the capacity to compress margins further.

Energy cost increases driven by the ongoing conflict in Iran raise the cost of site operations, transportation, and the production of energy-intensive materials internationally. Construction materials produced in more energy-exposed economies carry higher embedded costs that flow through to U.S. project estimates, and there's no domestic policy lever that addresses them.

The divergence is already visible in commodity data: copper is up 36% year-over-year, aluminum up 45%, and U.S. HRC steel up 27%, while Brent crude is down approximately 38% from its April peak. Construction-relevant materials aren't following energy prices lower. Both channels, tariff pass-through and embedded energy costs, register in the same project estimate.

If USMCA negotiations conclude favorably for North American trade flows, Section 232 tariffs sit under separate authority; renegotiation does not reach the primary cost instrument. The real decision node for construction materials costs remains the pending USTR Section 301 excess-capacity determination: if new duties stack on Section 232 goods, effective rates may exceed 50%.

The November report projected construction employment growth running well below its historical average of 2.7%. That projection has held: annual growth is tracking at just 0.6% in 2026. An aging craft workforce, a thin pipeline of new entrants, demand concentrated in electricians, mechanical contractors, HVAC technicians, and pipefitters where the existing pool is smallest has and will continue to disproportionately impact the incoming pipeline. More broadly, an immigration and enforcement environment that has reduced effective labor supply all compound a shortage the headline unemployment figures do not capture across sectors and trades.

The geographic dimension is where aggregate challenges become a direct procurement problem. 61% of U.S. metro markets are currently supply-constrained, with pipeline growth running materially ahead of labor force growth; that share rises to 72% by 2027. The markets where construction pipelines are expanding fastest are not where available labor is concentrated. Trades are locally credentialed, regionally organized, and project-bound; they don't arbitrage this mismatch the way other markets might. The labor environment that owners bidding 2027 and 2028 projects will face is already visible in today's supply-constrained markets.

Rate cuts gave way to a potential hike. At the June FOMC meeting, the median rate projection shifted to 3.8% by year-end, up from 3.4% in March, with nine of 18 participants now projecting a hike rather than a cut. The anticipated offset is not delayed; it's gone from the outlook. When trade policy pass-through and energy cost increases compound on top of a structural baseline that continues rising independent of both, the resulting cost position exceeds the November report's projection without the moderation the report assumed.

Construction demand has bifurcated in a way the November report only partially anticipated. Power infrastructure construction adds a second competing pipeline drawing from the same specialty trade pool: power and energy infrastructure is pacing to keep up with data center demand. The occupations most exposed to wage escalation from existing shortages, including electricians, HVAC and mechanical contractors, and equipment operators, are the same trades data centers and power infrastructure both require disproportionately.

The contractor community is pricing an elevated cost baseline in, not absorbing it. According to the ABC Contractor Confidence Index, roughly three in four contractors across size categories expect profit margins to stay the same or expand over the next six months, despite falling confidence in the market. These aren't signals of a market waiting for relief; they're signals of a market that has concluded relief isn't coming and has adjusted its pricing.

For owners whose programs don't draw as heavily from the same specialty trade pool or overlap with active data center and power infrastructure concentrations geographically, mid- to small-size contractors outside that pipeline currently represent a potentially accessible, price-competitive procurement option.

The case for acting is now structural, not just directional: the mechanisms that would have moderated either cost or labor pressure are no longer in play, and contractors pricing 2027 and 2028 work are already incorporating that conclusion. Organizations that engage now capture availability and terms their competitors bidding later won't see.