Highway Spending Boomed. Highway Building Didn't.

Key Takeaways

• Nominal highway spending up, but real spending down 7.5% after cost adjustment
• Construction input costs rose 73% since IIJA, driven by labor and asphalt
• Contractor capacity lagged demand, cutting bids and pushing prices higher
• Higher contingencies and risk premiums further eroded purchasing power
• Taxpayers get fewer miles of road per dollar, challenging IIJA goals

Pulse Analysis

The bipartisan Infrastructure Investment and Jobs Act (IIJA) was hailed as a catalyst for a modernized transportation network, prompting a surge in nominal highway and street construction outlays. Yet the National Highway Construction Cost Index tells a different story: costs for materials, labor, and equipment have ballooned roughly 73% since the law’s enactment. When those price escalations are factored in, the purchasing power of federal dollars has actually slipped, delivering about 7.5% less roadway mileage than the raw spending figures suggest.

A deeper dive reveals that the cost surge is not merely a function of inflation. Labor markets for non‑managerial construction workers have tightened, with average hourly earnings up roughly 32% over five years, while asphalt—a core input for pavement—has risen more than 40%. Contractors, facing heightened material prices and tighter margins, have added larger contingencies to bids to hedge against risk. Simultaneously, the broader construction sector—housing, warehousing, and manufacturing—has been competing for the same limited pool of skilled crews and equipment, squeezing contractor capacity and reducing the number of competitive bids on highway projects.

For policymakers, the mismatch between headline spending and tangible road output signals a need to reassess how future infrastructure funds are allocated. Strategies could include targeted subsidies for critical inputs, workforce development programs to expand the skilled labor pool, and procurement reforms that encourage more competitive bidding. Without such adjustments, additional federal dollars may continue to generate diminishing returns, undermining the IIJA’s goal of bolstering economic growth through robust transportation investment.