Trends in Highway and Rail Transit Construction Costs

Construction spending (both private and public) is a good proxy for overall construction market activity. As illustrated in Box 1 on the following page, private sector spending historically has been the major driver for construction activity. Its spikes beginning in 2003 sparked a period of high cost escalation.

With the onset of the Great Recession, private spending has dipped to levels below that of preboom (i.e., 1999-2003) spending levels. This dip, however, has been offset by increased public spending, primarily due to funds disbursed through the American Recovery and Reinvestment Act. Total spending has returned to pre-boom levels and appears to have stabilized at levels that are more sustainable than the spending levels during the boom period (2003-2007).

Private sector spending is expected to pick up in 2012, which would offset the anticipated decrease in public spending as the backlog of stimulus spending is cleared. In balance, total construction spending is expected to remain at or near current levels.  

Though construction spending levels have stabilized, construction prices continue to rise—albeit 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 0.6 index points, or 0.3 percent, in the month of October 2011 compared to September 2011. Despite this modest growth month, year to date the index has grown 11.3 percent (from January to October 2011). In October, the most recent month of data, construction labor increased 1.3 percent whilst all other components grew at less than 0.5 percent. The October 2011 PB HCCI index value is approximately 9.2 percent higher than October 2010.

Year to date through October, the index has bucked seasonal trends somewhat and has continued to show increases into the autumn months. Typically, costs have been somewhat seasonal and increased with construction demand and energy prices in the summer months and then tailed off toward the end of the year. Costs this year have continued to grow throughout the year. This trend has been driven by continually escalating asphalt and steel prices. As shown in Box 2, prices have reached highs not seen since the summer and autumn 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 U.S. 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 6.2 index points or 4.5 percent for the year 2011 (i.e., year to date, as of October). During this period, steel observed a 13-percent growth in price, while labor and other materials grew at 4.9 percent and 5.6 percent, respectively. All other component prices grew at less than four percent or decreased slightly. The October 2011 PB TCCI value is 4.2 percent higher than October 2010. Transit construction costs tend to experience less price volatility due to a lower impact of fuel prices, as is shown in Box 3. The PB 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 U.S. 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.

Market Trends for Key Components


Historically, steel has been a volatile commodity. Prices peaked in the third quarter of 2008—25-percent increase in Q2 2008 followed by another three-percent increase in Q3 2008—and then fell approximately 39 percent through the second quarter of 2009. Prices grew more modestly in 2010. This past year has seen a return to double digit growth with prices 13.6 percent higher in October 2011 than those in October 2010. Much of this volatility comes as international demand for steel and steel scrap increases, which, in turn, depletes domestic supplies. Box 4 highlights the quarter-by-quarter breakdown. Steel prices trended upward in the first two quarters of 2011, but began to trail off in Q3.


Concrete is primarily a combination of aggregates, like sand and stone, and cement. 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 readymix concrete: transportation costs (localized), cement costs (sourced from U.S. or Mexico), and aggregates (sourced locally). 

Box 5 highlights the quarter-by-quarter breakdown. Concrete prices have remained flat over the past year, going against strong stable historical growth trends. Ready-mix concrete prices peaked in January 2009 and have since gradually declined. They are now five percent  below the peak. From October 2010 to October 2011, concrete prices decreased by -0.2 percent.

Construction Equipment

Construction equipment prices have been historically stable over the last five years. Construction equipment prices have shown strong growth over the past year—four percent from October 2010 to October 2011. Some reports suggest that used equipment supplies continue to keep prices down; however, this impact should lessen as new emissions regulations make the older fleet obsolete.

See Box 6 for a quarter-by-quarter breakdown of machinery and equipment.


Similar to steel, asphalt has been very volatile. Prices peaked in September 2008, reaching an index value of 360, which is 38 percent higher than the October 2011 index value of 262. Much of this volatility is due to the unpredictability of the global oil markets. Asphalt binder, a key component of asphalt, is a byproduct of oil refining.

From October 2010 to October 2011, asphalt prices have decreased 25 percent. Box 7 highlights the quarter-by-quarter breakdown. The majority of this price increase occurred in May 2011, which was 24 percent over April 2011.


Unlike nationally- or globally-driven commodities, labor cost will be highly dependent on the local labor market. Since a substantial number of roadway and transit projects receive federal funding, contractors are typically bound to pay local prevailing wages. Parsons Brinckerhoff’s indices track national average construction wage rates and do not account for local influences.

Construction wages have been increasing over the past two quarters, which coincides with high construction activity during the summer months in colder climate regions. From October 2010 to October 2011, labor prices have increased 2.6 percent (see Box 8).


Image Header Source: WSDOT (Creative Commons)