Inputs Up, Outputs Flat: The 490-Basis-Point Question

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The Bureau of Labor Statistics (BLS) released May 2026 Producer Price Index data this week. For construction, two numbers define the month: nonresidential construction inputs rose 8.4 percent year-over-year, and nonresidential construction outputs rose 3.5 percent over the same period. The gap between those two figures is 490 basis points and has been widening for months.




The input index tracks what contractors pay: materials, freight, equipment, and other goods consumed in the construction process. The output index tracks what contractors charge: the price of completed nonresidential construction delivered to owners. When inputs outpace outputs, the difference must land somewhere. It lands on margins.

In May, nonresidential inputs rose 1.8 percent month-over-month. Nonresidential outputs rose 0.1 percent. The monthly spread is consistent with the annual one. This is not a one-month anomaly. It reflects a sustained period in which bid prices have not kept pace with cost escalation.

Why aren't contractors passing these costs through in their bids?

Competitive pressure. Contractor backlogs outside the data center sector are low but stable. That keeps firms active in bid rooms even as input costs rise. When margins are already thin and the pipeline is not deep, contractors absorb cost increases rather than risk losing work to a lower bid. As a result, that escalation gets internalized rather than passed along to the owner.

Freight costs are amplifying the problem. Truck transportation prices are running well above headline inflation, embedding a logistics premium into nearly every material delivery. That cost does not show up as a line-item, it is already priced into the material quotes before the bid is assembled.

What does the supply chain tell us?

The Construction Supply Chain Index (CSCI) bottomed out in the fourth quarter of 2025, touching 53.3 in November before increasing to an aggregate current read of 65.9.

Stress is rebuilding from a stable baseline, particularly in transportation and the global supply chain, driven by tariffs, geopolitics, and limited slack in the system. These upstream pressures are impacting material lead times. When CSCI stress rises alongside input price acceleration, it creates a risk profile far more volatile than either signal would suggest alone.



What does the CSCI tell us about where this goes from here?

The combination of a stressed CSCI and a widening input-output spread presents two possible resolutions. Either bid prices move up to close the gap, which requires market conditions to tighten enough that contractors can hold price, or margins continue to compress until firms begin declining work. Neither outcome is comfortable for project owners mid-budget cycle.

What should we do with this data?

The output index is not a reliable floor for escalation assumptions. Labor inputs are running at 5 percent year-over-year. Materials inputs are at 8.4 percent. The realistic range for project escalation sits somewhere between those two figures, with the upper bound approaching the materials input rate depending on project type and scope. Anyone budgeting off the 3.5 percent output figure is severely underestimating cost risk.

Freight is worth watching independently. Truck transportation costs are running well above headline inflation and embed a logistics premium into nearly every material delivery before the bid is even assembled. When freight runs this hard, material suppliers reprice to protect their own margins, and the next round of input price acceleration tends to follow.

Projects delivering in 2027 are riding the front side of this wave. The more consequential exposure lands on projects currently in early preconstruction targeting 2028 delivery and beyond. Margin compression does not correct in real time. When contractors stop absorbing what they can no longer hold, the adjustment shows up in bids with a lag, and projects that  have not stress-tested their escalation assumptions will encounter it at GMP rather than during budgeting.

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