Non-Residential Construction Outlook Improving as Costs Remain Flat and Industry Unemployment Falls
Cost Index Q4 2023

Mortenson, a leading national builder and developer, today released its Q4 2023 Construction Cost Index report for Minneapolis and other major U.S. markets.

The overall outlook for non-residential construction is cautiously optimistic, as flattening construction material costs, lessening oil prices, and confidence in the likelihood of interest rate cuts remain somewhat offset by continued workforce challenges and some continued areas of volatility.

Nationally, nonresidential construction costs tracked by the Mortenson Quarterly Cost Index remained almost flat for the 4th quarter of 2023, increasing by only 0.07% despite continued pressure on labor availability. The increase is the smallest since pre-pandemic business conditions, and follows on the heels of a minimal 0.19% increase in Q3 2023, signaling increased stability in material pricing and buoying the opportunity for building on a market-to-market basis. 

Mortenson regional offices reporting cost increases this quarter likewise again saw minimal gains, including nominal increases in Minneapolis (+0.6%), Chicago (+0.15%) and Phoenix (+0.65%). Offices with essentially flat quarters included Milwaukee (0.01%), Seattle (+0.01%) and Portland (+0.01%), with Denver witnessing a stronger decrease in costs of more than three quarters of a percentage point (0.78%).

Subcontract work, which accounts for roughly 51% of the cost index weighted value, increased by 0.3% during the quarter, while construction materials (43% of the cost index) decreased by (0.2)% and labor (6% of the cost index) remained flat.

According to an Associated Builders and Contractors (ABC) analysis of data released by the U.S. Bureau of Labor Statistics, the construction industry added 17,000 jobs on net in December, and on a year-over-year basis, employment has grown by 197,000 jobs, pushing the industry unemployment rate down to 4.4% in December even as unemployment across all industries remained unchanged.


Stronger than average wage growth, expanded employee benefit programs, and bonuses and incentives are helping to attract and retain talent. Still, the ABC projects that increased construction spending across 2024 will necessitate an “all of the above” approach to hiring in order to add the 500,000 new workers needed to meet demand. 

The possibility of interest rate cuts could improve the financing picture and help to trigger new project starts in 2024, particularly toward the second half of the year. Even as hiring continues unabated, inflation has cooled, and market watchers are expecting the U.S. Federal Reserve to cut interest rates by 1% to 1.5% over the course of the year, landing short-term interest rates at approximately 4% by December 2024, based on forecasts.

While the majority of material costs continue to stabilize, the index does show some volatility across mechanical, electrical, and plumbing MEP scopes. Raw material futures suggest that volatility could continue: while aluminum sales plunged in reaction to slowdowns in global industrial and real estate sectors, copper futures have surged as decarbonization projects drive demand for copper-rich electrification systems, prompting miners to warn that long-term supply will fail to keep pace with bullish demand in the coming years

Global shipping costs for both raw materials and finished goods are likely to increase in 2024, as drought in Central America and piracy in the Red Sea complicate passage through the Panama and Suez canals, respectively. Transportation costs stateside continue to improve as oil prices drop and inventories shrink, reducing headwinds facing the trucking industry. 

Our construction cost index shows a near flattening of material, labor, and subcontractor costs for the 4th Quarter 2023 and a continued slowdown to the pace of cost increases initially triggered by the COVID-19 pandemic. Based on market data and our insights, we remain optimistic while mindful of trade-specific labor availability on a market-to-market basis. We recommend customers gauge the relative challenge of labor cost while considering project starts on an opportunistic basis in the first half of 2024. 

Mortenson tracks and reports on seven metropolitan areas in the U.S. including Chicago, Denver, Milwaukee, Minneapolis, Phoenix, Portland, and Seattle. The Mortenson Construction Cost Index is calculated quarterly by pricing representative non-residential construction projects in various metropolitan areas. It is part of a portfolio of industry insights and market studies provided by Mortenson.

For nationwide construction cost index data visit:

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