The Federal Highway Administration reported this week that highway construction costs rose again in the first quarter of calendar year 2024, at an annualized rate of 9.6 percent (a 2.4 percent increase over the last quarter of calendar year 2023).

The National Highway Construction Cost Index (NHCCI) is maintained by FHWA and updated quarterly. It dates back to 2003, when it replaced the old Bid-Price Index.

The January-March 2024 NHCCI was 3.1908, when means that highway construction costs were 3.19 times higher then than they were when the NHCCI started at level 1.0000 in January-March 2003. Over 21 years, that translates to an average index growth of 15.2 percent per year, but the chart on the FHWA website shows that there were three general phases to this:

• Rapid growth from the start of the index, peaking at the onset of the financial crisis in July-September 2008;
• A ten-year lull, where costs decreased and then took until July-September 2018 to get back to the July-September 2008 level; and
• Skyrocketing costs starting during the recovery from COVID and continuing almost unabated since then.

The last trough on the FHWA chart bottomed out in the October-December 2020 quarter, when NHCCI was 1.8601. Here is what has happened since:

The economics team at FHWA also publishes a small paper each quarter that tries to put the NHCCI number in context. The paper for this quarter states that the trend “suggests the period of high inflation may not be over, but it may be slowing down compared to the rates observed in 2021 and 2022.”

Notably, while many of the big swings in the recent history of the index were driven by the price of asphalt, which tracks the price of crude oil more or less, this time the big driver was concrete, which singlehandedly spoke for about 40 percent of the quarterly increase.

FHWA’s analysis also compares the growth of NHCCI since January 2000 to three other inflation measures: the well-known Consumer Price Index, plus the less-well-known Producer Price Index and the labor-specific Employment Cost Index. It shows highway construction costs continuing to advance well after other indices had peaked.

The bipartisan infrastructure law (the IIJA) was written in an era of de minimis inflation. Congress set all of the spending levels in that bill in the spring and summer of 2021. In particular, Highway Trust Fund contract authority levels for highways were set by the Senate Public Works Committee in their bill in May 2021 and not changed at all. So we feel safe in using the April-June 2021 quarter as a starting point for what Congress intended to spend, starting at the beginning of the IIJA five-year period that began on October 1, 2021.

March 31 of this year marked the halfway point of the IIJA’s five-year fiscal period. During that period, the Federal Highway Administration obligated $143.3 billion in funds (excluding the emergency relief program, which was not part of IIJA). But if we deflate those dollars by using NHCCI to convert them to dollars as they were in the April-June 2021 quarter when the IIJA was written, the buying power of those dollars decreases by $39.8 billion, to $103.5 billion – a decrease of nearly 28 percent.

The loss gets more troubling the farther back you go. FHWA recorded $8.5 billion in obligations in the January-March quarter of 2022 (winter is always slow). January-March 2024 was higher in nominal terms, at $8.8 billion, but when converted using NHCCI, the new number drops down to $5.6 billion in obligations, $2 billion less than the corresponding number from two years ago. In real terms, we are spending less money on highways now than we were two years ago.

The FHWA analysis closes on this note: “Given the sustained period of high inflation shown by the NHCCI, FHWA is interested in exploring research to better understand the sources of the cost increases and potential interactions with factors such as supply chain challenges, demand for highway construction, and interest rate increases. If you have any data points or anecdotes related to these topics or specific material cost changes, please reach out to nhcci [at] dot.gov to share and discuss.”