The Federal Highway Administration has updated its quarterly index for highway project construction costs (the NHCCI). After three years of regular quarterly increases, the NHCCI actually declined by a half-percentage point in the October-December 2023 quarter from the prior quarter. However, if you use the new “seasonal adjustment” measurement of the NHCCI, the final quarter of 2023 was still a 4.0 percent increase over the prior quarter.

The written narrative from FHWA economists states that “There is a historically negative seasonal effect during Q4 and Q1 that may be contributing to the slight deflation observed this quarter.” That is visible on FHWA’s line chart of the NHCCI going back to its inception in 2003, where the blue line is the original index, which divots downwards in the fourth quarter of many years, as cold weather curbs construction activity and demand for materials. (The orange line is the new, seasonally adjusted trendline).

However, when you add it all together, year upon year, there is no real cumulative difference in the old rate vs the seasonally adjusted rate. In both instances, the cumulative increase in highway construction costs since the October-December 2020 quarter is 68 percent.

Converting this to actual dollars lost to construction cost inflation, the Federal Highway Administration has signed $182.4 billion in contracts and other spending obligations (excluding the emergency relief program) since January 1, 2021. But once you convert the nominal dollars to “real” dollars using the October-December 2020 quarterly NHCCI as your starting point, that $182.4 billion drops down to $132.9 billion, meaning that $49.4 billion has been lost to highway cost inflation since January 2021.

Even the nominal numbers reveal something interesting – FHWA and state DOTs signed a smaller dollar amount of contracts in the last two quarters of 2023 than they did in the last four quarters of 2022 ($31.3 and $6.3 billion in 2022 versus $28.8 and $6.1 billion in 2023, respectively).

This may be linked to the ongoing August Redistribution crisis and the fact that some states may be running out of ready-to-go highway projects that can be put out to bid and started quickly.

Meanwhile, the written narrative accompanying the NHCCI updates keeps getting more interesting, with this quarterly edition featuring a new chart comparing four items over the last 20 years: the NHCCI, the overall Producer Price Index for all commodities, the specific Producer Price Index for asphalt, and the Producer Price Index for domestic crude oil.

The chart, shown below, is fascinating. You can see how NHCCI was dragged upwards in 2006 and 2008 by price spikes in crude oil/asphalt, and it seems clear how NHCCI was dragged upwards since 2020 by oil and asphalt as well. But it doesn’t explain NHCCI’s relative indifference to oil and asphalt prices during that long 2009-2020 period.