Trends in Highway and Rail Transit Construction Costs

Market Overview

In line with the rest of the economy, the construction industry experienced a significant downturn from 2008 through 2010. The downward trends were somewhat stabilized in 2011, which was considered by many to be a recovery year, albeit a slow recovery. The US debt ceiling impasse, high oil prices, and the European sovereign debt crisis all weighed on consumer confidence, and hence on private construction demand for single family housing and commercial development. There were some bright spots in 2011, specifically in the construction of multifamily housing, manufacturing plants, and electric utility projects. For example, after starting the year at $13.5 million a month, spending on multifamily housing grew to $16.4 million a month by the end of the year (a 21 percent increase). Similarly, spending on manufacturing construction in January 2011 stood at $29.1 million and by December it had risen to $44.3 million (a 52 percent increase).

Overall construction market activity is comprised of private and public construction spending. As illustrated in Box 1, private sector spending has recently been the major driver for construction activity, with its spike beginning in 2003, sparking a period of high cost escalation. With the onset of the Great Recession, private spending has dipped to levels below that of pre-boom (i.e., 1999-2003) activity levels; however, this dip has been partially offset by increased public spending. This is primarily due to funds disbursed through the American Recovery and Reinvestment Act. Total spending has nearly returned to pre-boom levels and appears to have stabilized at more sustainable levels when compared with the boom period of 2003-2007.

In absolute terms, after its peak of $962 billion in March 2006, private spending on construction had fallen to its lowest level in March 2011, $477 billion. Since then, it has increased by almost 13 percent to $539 billion, and is expected to continue to grow in 2012.

Much of this growth has been driven by spending in the public and power sectors, the latter of which had an approximately 18 percent increase between 2010 and 2011. It is expected that in 2012 the growth in the private sector will continue and thus help offset anticipated decreases in public spending. With the increased growth in private sector spending, we anticipate overall construction demand to increase, albeit at moderate levels. Though construction spending has stabilized, construction prices continue to rise, but at fairly low rates. This is largely driven by pressure from elevated commodity prices (especially steel and asphalt).

Highway Construction Cost Trends

Parsons Brinckerhoff’s Highway Construction Cost Index (PB HCCI) increased approximately 1.5 index points or 0.9 percent in the month of April 2012 compared to March 2012. In the month, asphalt and aggregate were the primary cost drivers, with increases of three percent and 1.2 percent respectively. The index has grown since last year, with the April 2012 index 8.5 percent higher than the April 2011 value (Box 2). Year to date through April, the index has grown 3.2 percent, continuing the higher cost trends from 2011. This trend has been driven largely by the continued escalation of asphalt prices. As shown in Box 2, prices still remain below highs seen in the summer and fall of 2008.

PB HCCI is comprised of the following six cost components: construction labor, construction equipment, steel, asphalt and asphalt binder, aggregate, and concrete. The resulting index represents average highway construction costs for the US as a whole.

Cost inflation for specific regions, capital programs, and projects will vary from this index depending on project types and work mix, as well as the regional or local construction market, including local contractor and material supplier markets, and contractor margins, which are lower during construction downturns.

Rail Transit Construction Cost Trends

Parsons Brinckerhoff’s Transit Construction Cost Index (PB TCCI) has increased approximately 0.9 index points or 0.6 percent for the first four months of 2012. During this period, steel saw a 0.8 percent growth in price, other materials grew 2.9 percent, and equipment grew 1.8 percent. All other component prices grew at less than 0.7 percent or decreased slightly.

The April 2012 PB TCCI value is 1.6 percent higher than April 2011 (Box 3). Transit construction costs tend to experience less price volatility compared to PB HCCI due to the lower impact of fuel prices.2

Year to date through April, the index has showed continued, but slow, growth after the dip in prices from late 2011. It remains to be seen whether prices will continue to rise through the summer and reach or exceed 2011 highs.

Parsons Brinckerhoff’s TCCI is comprised of the following cost components: steel mill products, ready-mixed concrete, machinery and equipment, construction labor, and other materials. Because vehicle acquisition is not a part of all transit capital projects and is not a true construction cost, costs for rolling stock have been excluded from the index. The resulting indices represent average transit construction costs for the US as a whole. Cost inflation for specific regions, capital programs and projects will vary from this index depending on project types and work mix, as well as the regional or local construction market, including local contractor and material supplier markets, and contractor margins.

Market Trends for Key Components


Historically, steel has been a volatile commodity in terms of price due to the globalized nature of its factor inputs, especially the price of iron and steel scrap. Prices peaked in the third quarter of 2008 then fell by 32 percent through the second quarter of 2009. Prices are recovering, but at a much more modest pace, particularly in recent quarters. For the past nine months steel prices have remained more or less unchanged, decreasing by less than one percent (Box 4).


Concrete is primarily a combination of cement and aggregates, such as sand and stone. When combined together, the resulting product is known as ready-mix concrete. Because the concrete cures naturally in a short period of time, it must be sourced from a batching facility which is close to the construction site. There are three primary cost drivers for ready-mix concrete: transportation costs (localized), cement costs (sourced from US or Mexico), and aggregates (sourced locally).

Unlike steel, concrete prices are less volatile and have exhibited relatively flat growth (Box 5). Ready-mix concrete prices peaked in January 2009 and then declined through Q1 2011. Over the past four quarters, prices have trended slowly upwards, with a less than one percent quarterly growth rate.

Construction Equipment

Construction equipment is typically distributed to contractors through a network of local dealers, or local branches of national rental firms, through both rental and lease arrangements and outright purchases. This is supplemented by rental arrangements between contractors. Equipment at the original equipment manufacturer (OEM) level comes primarily from four large firms (Case, Deere, Caterpillar, and Komatsu).

From January 2006 to January 2009 construction equipment prices rose 10.5 percent. Prices then stagnated for a period, growing only 0.3 percent over the following 22 months (January 2009 to November 2010). Since reaching a low in July 2010, construction equipment prices have trended upwards, increasing 6.3 percent (Box 6). This price growth is partly due to the implementation of TIER IV emissions standards.

Asphalt Binder

Asphalt pavement is largely made up of two components: asphalt binder andaggregate. Asphalt binder, a byproduct of petroleum refineries, is used to holdloose aggregate together in asphalt pavement. Prices are often closely linked to theprice of crude oil.

Starting in the second quarter of 2011 asphalt prices rose to levels not seen since2008 (Box 7), primarily driven by high crude oil prices.


Aggregates, composed of crushed sand and stone, are a key construction material for highway construction. They are largely used as components of asphalt and concrete, but are also used as a base material underneath road surfaces. Being a heavy natural commodity, aggregates tend to be sourced from within 50 miles of a project.

Since Q2 2009, the quarterly percent change in the price of aggregate has fluctuated between -0.5 percent and 2.5 percent, and prices have largely been climbing. Q1 2012 saw prices grow at rates not seen since the construction boom (Box 8), potentially in response to the recent uptick in private construction.



  1. The variance in the charts refers to the index difference between PB HCCI and CPI (Box 2), and the PB TCCI and CPI (Box 3)
  2. Fuel is a component of construction activities in both highway and transit. However, asphalt mix – a component of the HCCI but not the TCCI, is a petroleum-based product, and is thus closely tied to changes in the price of oil
  3. Data source for Boxes 4 through 8: US Bureau of Labor Statistics


Image Header Source:  Elvert Barnes (Creative Commons)