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November 2023 | Vol. 12 / No. 17

Nonresidential building construction overhead and profit markups: 2018 through 2022

By Derek Wasilewski

In 2004, the Producer Price Index (PPI) introduced indexes tracking the average changes in prices received by the nonresidential building construction sector. For these calculations, PPI has collected information describing costs for labor and materials, as well as builder overhead and markup for construction activities. This Beyond the Numbers article provides updated information that supplements two previous articles from the PPI relating to nonresidential building construction.

This series focuses on a special calculation that tracks a particular component of the PPIs for nonresidential building construction—changes in builder overhead and markup. Changes in builder overhead and markup are compared with changes in material input costs, as well as changes in the PPI output price indexes for nonresidential building construction. The resulting information identifies potential sources of cost pressures impacting output prices.

Due to the custom nature of construction, for this sector, PPI uses a model-based methodology that differs from most other PPIs. Working with professional cost-estimating firms, multiple construction models have been developed to accommodate regional variations in building design. The building models consist of a series of detailed project components and specifications, as well as labor and material costs and quantity estimates for each job. These specifications are updated on a quarterly basis.

Next, as part of the monthly calculation of the PPIs for nonresidential building construction, the program maintains a survey of nonresidential building construction contractors. The PPI survey requests information for overhead and profit markup from these producers. Participating construction firms, including both general contractors and trade contractors, indicate the markup that the firm would add to the estimated material and installation cost as if they were bidding to perform work on the modeled project specified for their building type and region. These markup figures are combined with estimated material and installation costs to calculate output price indexes for five types of nonresidential buildings: warehouses, industrial buildings, schools, offices, and healthcare buildings.1

Beyond their use in the calculation of the PPI output price indexes for nonresidential building construction, overhead and profit markup data from contractors are interesting on their own. Since December 2004, PPI has calculated a special index that isolates and measures changes in overhead and markup. With the publication of this article, the markup index has been extended through December 2022. This information, along with the aggregate PPI for new nonresidential building construction and a measure of construction material input costs to new nonresidential building construction industries, is shown in chart 1.

Extended recovery after the Great Recession continues, January 2018–March 2020

The markup index moved higher from Spring 2018 to Spring 2020, continuing an almost decade-long trend of rising markups from lows following the 2008–09 Great Recession. (See chart 2.) Nonresidential construction spending rose about 15.0 percent between March 2018 and March 2020, while construction employment increased 4.8 percent (345,000 jobs) over the same period—increasing by over 2 million jobs compared with its low in 2010.2 Contractor confidence for higher profit margins was generally strong, with confidence for rising profit margins recording its highest ever reading in third quarter of 2018. Recruitment and retention of skilled labor to replace an aging workforce was the main concern for the industry.3 At least three-quarters of firms surveyed by the Associated General Contractors of America planned to increase their headcounts each year from 2018 through 2020.4 High confidence, healthy backlogs, increased spending, and a shortage of workers allowed contractors to continue to gradually increase their overhead and profit markups. In addition, new tariffs in 2018 on selected steel and aluminum materials led some PPI respondents to further increase markups in anticipation of rising material costs.5

COVID-19—uncertainty followed by inflation, April 2020–May 2022

In March 2020, the World Health Organization declared a worldwide pandemic. The period following the COVID-19 pandemic declaration saw extraordinary movements in many economic timeseries, including the PPI contractor markup index. In the first few months of the pandemic, a larger than usual percentage of PPI respondents decreased markups as contractors scrambled to fill their backlogs ahead of an uncertain future. (See chart 3.) Contractor confidence fell to record lows, due to anticipated decreases in sales, profit margins, and staffing levels.6

Some of the decreases in markups may have been an effort by firms to win bids and keep their workers employed, possibly to satisfy one of the requirements for forgivable loans granted by the Paycheck Protection Program (PPP).7 According to the Small Business Administration, the construction sector was approved for 496,551 PPP loans worth $65 billion.8 Through the first round of the program, the construction sector received the most loans of any sector, and ranked third following the program’s second round of disbursements.9 Throughout most of the country, construction was recognized as an essential business, and while some localities placed restrictions on construction, the sector was not subject to the same types and levels of restrictions as other sectors such as leisure and hospitality.10 The construction industry retained more of its workers during the pandemic and recovered to March 2020 employment levels sooner than total U.S. nonfarm employment.11

The slight downward trend in the overhead and profit markup index at the outset of the pandemic reversed in October 2020 and rose alongside material costs throughout 2021 and 2022. Contractor markup, material costs, and nonresidential building construction producer prices reached historically high levels of increase during this period.

Contractor markups increased with record high material costs

Starting in late 2020 and accelerating in early 2021, global supply chain issues combined with high demand resulted in large increases in construction-material prices. By May 2021, the PPI for Inputs to nonresidential building construction, goods rose 25 percent from its level 12 months earlier. Advances in material costs were widespread, with over 60 goods included in the PPI material inputs index having 12-month increases greater than 10 percent. Some materials, including lumber and steel, more than doubled in price on a year-over-year basis. For nonresidential construction, where buildings are typically framed with steel, the steel price increase was a much larger concern than was the rise in lumber prices, which mostly affected residential construction.

PPI survey respondents can provide comments with their monthly price updates, and these comments often offer unique and valuable insight into the most pressing issues in the business community. Bureau of Labor Statistics economists also engage in conversations with PPI survey respondents, yielding anecdotes and insights beyond the standard requests for overhead and profit markup data. These communications give context regarding why respondents change (or do not change) their overhead and profit percentages.

As material costs rose, respondents remarked that increased risk and uncertainty justified higher profit margins, and that an additional cushion was required to protect against product-supply delays or other problems. Overhead costs rose in response to extra expenses in ordering, transporting, storing, and securing materials at the jobsite. In some cases, expectations of future cost increases resulted in higher markup percentages to account for the time between when a job was bid and when materials were ordered. Many contractors complained that prices were increasing so rapidly that price quotes for materials were only honored for weeks or days, instead of the usual months-long offers. Components, particularly more complex assembled items such as electrical panels or products including computer chips, had lead times of over a year. Even relatively simple and ubiquitous items like fasteners were unavailable at times.12 These issues increased the risks associated with bidding on and taking construction jobs, justifying higher overhead and profit markups. Although for a short period from early to mid-2020, decreases in markups for overhead and profit margin outweighed increases, advances in markups outweighed declines beginning late 2020. (See chart 3).

Higher markups for overhead and profit also were observed beyond the construction industry. In September 2021, operating profit margins for S&P 500 companies were at record highs, and the Wall Street Journal reported that “executives are seizing a once in a generation opportunity to raise prices to match and in some cases outpace their own higher expenses, after decades of grinding down costs and prices.”13

Markup increases were widespread

Respondents vary in how frequently they update their overhead and profit markups. Some make small adjustments many times per year. Others keep markups at the same level for many years. Sometimes changes in 1 month are followed by additional changes in subsequent months, as respondents search for the optimal level of markup to maximize profit in changing economic conditions. Even though many respondents leave their markup unchanged in most months, the percentage of respondents reporting changes in their markup increased sharply in April 2020. Chart 3 illustrates that prior to the pandemic, from January 2016 through March 2020, a typical reporting month for PPI would include updates to about 10 percent of prices reported, counting both increases and decreases in markup prices. From April 2020 through June 2022, the average percentage of respondents reporting changes to overhead and profit markups grew to over 17 percent. At their peak in May 2021, 27 percent of markup prices reported to PPI included a change (22.5 percent reporting higher markups and 4.5 percent reporting lower markups).

Acceptance of a new equilibrium, June–December 2022

In June 2022, the PPI index for goods inputs to construction industries peaked, while the markup index continued to rise. (See chart 1.) Prices for some of the input materials that exhibited dramatic price increases in 2021, including steel and lumber, were the first to reach their highs in late 2021 and early 2022, while prices for other materials, such as concrete, never stopped rising. Throughout 2022, prices for materials remained higher than before the pandemic. However, bi-directional price volatility in 2022 made it more difficult for builders to assess overall material input cost pressures, compared with 2021, when prices for nearly all materials were increasing. Some PPI respondents explained that improvements in material availability and lead times allowed them to ease markups. Others remarked that conditions were about the same as they were earlier and left markups for overhead and profit at higher levels. Chart 3 illustrates that after over a year of adjusting to higher prices and supply chain issues, the percentage of respondents with increases in markups fell in the second half of 2022, and that the balance between increases and decreases to overhead and markup margins also returned to roughly pre-pandemic levels in the latter half of 2022.


As material cost pressures eased in 2022, contractors slowly returned their focus to concerns about construction demand and labor availability, as was typical before the COVID-19 pandemic.14 Moving into 2023, the residential construction market faced barriers linked to rising interest rates. In contrast, in early 2023, demand for nonresidential building construction, particularly industrial and healthcare building construction, remained solid.15 Strong demand may continue to support elevated overhead and profit markups; however, if demand softens in the medium-to-long term, record high levels of builder markup linked to overhead costs and profit margins may retreat to levels more in line with historical norms.

This Beyond the Numbers article was prepared by Derek Wasilewski, an economist in the Office of Prices and Living Conditions, U.S. Bureau of Labor Statistics. Email:; telephone: (202) 691-7708.

If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services. This article is in the public domain and may be reproduced without permission.

Suggested citation:

Derek Wasilewski, “Nonresidential building construction overhead and profit markups: 2018 through 2022,” Beyond the Numbers: Prices & Spending, vol. 12, no. 17 (U.S. Bureau of Labor Statistics, November 2023),

1 U.S. Bureau of Labor Statistics, "Producer Price Index Data for the Nonresidential Building Construction Sector, NAICS 2362," July 14, 2016,      

2 U.S. Census Bureau, “Total Construction Spending: Nonresidential in the United States [TLNRESCONS],” Federal Reserve Bank of St. Louis,, June 7, 2023; U.S. Bureau of Labor Statistics, “Employment, Hours, and Earnings from the Current Employment Statistics survey (National),”

3 Associated Builders and Contractors, "Construction Confidence Index,"; Associated General Contractors of America, "Seventy-Five Percent Of Construction Firms Plan To Expand Headcount In 2018, Contractors Are Optimistic About Strong Economy, Tax & Regulatory Cuts," January 3, 2018,       .

4 Associated General Contractors of America, "Construction Outlook Survey Results," 2018–20; see,, and            

5 Associated General Contractors of America, "New Steel & Aluminum Tariffs Will Hurt Construction Firms By Raising Materials Costs While Potential Trade War Will Dampen Demand," March 8, 2018,    

6 Jennifer Goodman, "Contractor confidence plummets to record low amid crisis," Construction Dive, April 24, 2020,      

7 U.S. Small Business Administration, "PPP Loan Forgiveness,"

8 U.S. Small Business Administration, "Paycheck Protection Program (PPP) Report,"             

9 Tom Ichniowski, "Update: Construction Tops Industries in Paycheck Protection Loan Volume," Engineering News-Record, April 17, 2020,           

10 Laura Bourgeois LoBue, Matthew D. Stockwell, Elizabeth J. Dye, Andrew M. Argyris, "Construction During COVID-19: Is It Essential?" Pillsbury Winthrop Shaw Pittman LLP, July 27, 2020,

11 U.S. Bureau of Labor Statistics, All Employees, Total Nonfarm [PAYEMS], retrieved from FRED, Federal Reserve Bank of St. Louis, June 8, 2023, and   .

12 Associated General Contractors of America, "July 2022 Construction Inflation Alert,"; Patrick Sisson. "For the Want of an Insulation Screw," The New York Times, November 15, 2022.

13 Caroline Valetkevitch, "Investors watch U.S. companies' record profit margins as costs rise further," Reuters, September 22, 2021,; Kristin Broughton and Theo Francis, "What Does Inflation Mean for American Businesses? For Some, Bigger Profits," The Wall Street Journal, November 14, 2021,                           

14 Anirban Basu, "Job Sight: The 2023 Construction Economic Forecast," Construction Executive, November 29, 2022,

15 Alisa Zevin, "Dodge Forecast: Pace of Construction Starts to Flatten Out in 2023," Engineering News-Record, November 15, 2022,   

Publish Date: Tuesday, November 28, 2023