Rising Construction Prices Shrink Contractor Backlogs in July

Costs Climb as Projects Slow

US construction costs continued climbing in July, with material input prices up 7.4% year-over-year and a further 0.1% increase over June, according to Associated Builders and Contractors (ABC) analysis of Bureau of Labor Statistics data, per Bisnow. While a 12% monthly drop in crude oil prices provided momentary relief, increases in prices for natural gas (up 10% in July), iron and steel (up 2.4% monthly, 17.6% annually), copper wire (up 0.2% in July, 17.9% year-over-year), and softwood lumber (up 6.4% monthly) continued to put pressure on contractors’ budgets.

The persistent rise in input costs comes as contractor backlogs—the metric that measures months of committed work—shrank rapidly. ABC reported that average backlogs dropped to eight months from 8.8 months between June and July, the sharpest fall since early 2022. The simultaneous surge in input prices and drop in project pipeline marks a double hit for contractors already facing tight margins.

The Details

In July, construction input materials broadly outpaced inflation, with the exception of crude oil, which declined for the month. However, this trend appears temporary, as the Brent crude oil index has already gained back more than 5% since the start of August. Meanwhile, steel and copper products have seen sustained double-digit increases over the last year. For contractors focused on smaller projects, conditions are especially dire: ABC data shows backlogs among firms with $30M–$50M in annual revenue dropped to the lowest level since March 2020. In contrast, firms active in data center construction currently have backlogs exceeding 11 months. For the remaining 88% of contractors not in the data center pipeline, average backlogs are just 7.5 months—well below the national average.

Data Centers Buck the Broader Trend

Data center construction is one of the lone bright spots in an otherwise stagnant market. Earlier this year, surging data center demand helped lift contractor backlogs to a 10-month high. That strength now contrasts sharply with weakening pipelines across most other construction sectors.

ABC Chief Economist Anirban Basu noted the market’s lack of momentum almost everywhere except data centers. Robust demand has led to extended backlogs and greater confidence among specialized builders. Meanwhile, sectors like multifamily and office construction remain weak, with JLL reporting office development is still “extremely depressed by historical standards” after record lows in 2024–2025. Multifamily starts hit a 15-year low in Q1 2026, and Wells Fargo economists see overall activity at levels reminiscent of post-Great Recession years. Contractors outside of the data center boom are grappling with weak pipelines and rising material costs—an unsustainable combination for many.

Why It Matters

For contractors, a persistent climb in materials costs combined with shrinking backlogs squeezes both operational flexibility and profit margins across the construction sector. The latest ABC survey found that 66% of contractors expect profits to remain flat or decrease in the near term, indicating little room to offset rising costs by passing them along to owners or developers. This pressure is most acute for small and midsize firms not active in data centers—the segment where higher backlogs create more pricing power and volume stability.

Sector bifurcation is becoming more pronounced. Data center construction is absorbing much of the experienced labor and materials supply, further tightening access for contractors focused on other asset classes. Meanwhile, office and multifamily development remain mired in historic lows. The imbalance risks long-term industry contraction, with a shrinking pipeline limiting the ability to hire and invest just as input inflation persists. Amid renewed trade tensions and volatility in commodities, baseline expectations for construction costs and project volume have become far less predictable well into 2027.

What’s Next

Despite the outlook, a slim majority of construction executives remain optimistic about near-term sales and staffing, according to ABC’s monthly confidence survey. However, profit caution is widespread, signaling further industry belt-tightening ahead. With crude prices rebounding in August and key building materials showing no signs of correction, upward pressure on costs is likely to remain through the end of 2026. For now, only the data center sector provides meaningful relief. The remainder of the industry may require a drop in input prices or a surge in new project starts to avoid further backlog erosion and contractor distress in the coming months.