FHWA Says Highway Construction Costs Continue to Soar

Cost of Such Projects Increased 53.8% in First Quarter of 2023 From $2.86 Billion in Fourth Quarter of 2020
Highway roadwork in Connecticut
Roadwork in Connecticut. The National Highway Construction Cost Index continued to increase in the first quarter of 2023, though at a slower rate than in 2021 and 2022. (portal.ct.gov)

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Rising inflation appears to be taking a big bite out of funding for highway construction projects.

The cost of such projects rose 53.8% in the first quarter of 2023 from $2.86 billion in the fourth quarter of 2020, according to the latest data from the Federal Highway Administration.

FHWA for two decades has kept a National Highway Construction Cost Index, using data on successful bids on state highway building projects measuring information from the viewpoint of buyers (such as states). The average price charged is calculated for each item in each state, with price changes combined into a national index. Information includes quotes on specific items in projects (material like steel and asphalt, labor costs, profit and overhead).

Construction costs affect the amount governments invest in new roads, highways and bridges, particularly in using the outflow of federal funds from the bipartisan infrastructure law of 2021, which provides $350 billion from fiscal years 2022 through 2026 to states and other municipalities for highway and bridge construction projects.

“The NHCCI reached a new all-time high in the first quarter of 2023; increasing 2.7% from the previous quarter. The second quarter of 2022 (11.9%) grew faster than any other quarter in this 2.5-year span,” noted the Bureau of Transportation Statistics in its NHCCI “2023 Year-in-Review.”

It stated that highway construction costs rose steadily in the first three months this year, part of an upward trend extending back through the 10 previous quarters. “Over the 10 quarters [from the fourth quarter of FY2020 through FY2023Q1], highway construction costs grew 53.8%,” BTS determined.

Driving higher prices this year were construction component costs for concrete, grading/excavation and asphalt.

An analysis of this data by an FHWA economist, released Sept. 12, noted that factors other than construction material input prices “may be contributing to inflation” this year. When looking at asphalt, for example, costs for “labor, transportation or price markup may be driving that portion of the cost increase as opposed to the cost of the material itself,” the analysis said.

The FHWA economist continued, “Compared to the historical quarterly average of 1.4% growth, this [2.7% increase] is still higher than average inflation but less than the high inflation observed during 2021 and 2022, where average quarterly growth was 5.2%. This suggests that the elevated inflation in 2021 and 2022 may have been driven by supply chain disruptions and fluctuating oil prices.”

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In another look at public highway construction, U.S. Census Bureau figures released Nov. 1 showed $98 billion (up 15.5% compared to the same period last year) was spent on non-residential public construction of highways and streets this year through September.

Census Bureau figures — in its “Value of Construction Put in Place in the United States” report — for the public highway/street category amounted to $84.9 billion from January 2022 through September 2022.