Inflation, Tariffs, and One Big Beautiful Pulse Check, with Rob McManamy

Just days after a massive new federal funding package was signed into law this month, new data showed inflation returning and higher than expected tariffs taking effect. Here, HPAC Engineering reviews some of the wide range of emotions our industry has been expressing. 

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TRANSCRIPT:

As I am recording this, inflation and tariffs have reared their ugly heads again and retaken the headlines from the controversial One Big Beautiful Bill Act. The OBBBA was signed into law by President Trump on July 4th, after making its way through both Houses of Congress by the skin of its teeth.

The OBBB Act drew much industry reaction, and I will get back to that in a moment. But this week, another economic news jumped to the fore...

On July 16, construction input prices increased 0.2% in June compared to the previous month, according to the latest Producer Price Index data released by the U.S. Bureau of Labor Statistics’ Producer Price Index. Nonresidential construction input prices increased 0.3% for the month.

Overall construction input prices are 2.1% higher than a year ago, while nonresidential construction input prices are 2.5% higher. Prices increased in 2 of the 3 energy categories last month. Natural gas and unprocessed energy materials prices were up 5.9% and 1.4%, respectively, while crude petroleum prices decreased 0.1% in June.

“Nonresidential input price escalation has accelerated in 2025, with prices rising at a rapid 6.0% annualized rate through the first half of the year,” said Anirban Basu, chief economist for Associated Builders and Contractors (ABC). “Despite this acceleration, prices for many of the inputs most directly affected by tariffs, like iron and steel, declined in June. While it is unclear how and when trade policy will affect construction materials prices, the impact was evident in June’s Consumer Price Index release; prices for core goods excluding automobiles rose at the fastest pace since late 2021.

“Economic uncertainty remains extraordinarily elevated,” said Basu. “What is all but certain is that the Federal Reserve will not be cutting interest rates at its July meeting. Despite higher-for-longer interest rates and rising input prices, contractors remain relatively optimistic about their profit margins, according to ABC’s Construction Confidence Index. This could be due to 100% bonus depreciation—made permanent in the One Big Beautiful Bill—offsetting higher operating costs.”

Meanwhile, new U.S. tariffs on imports also made news this week... In his weekly newsletter, released July 14, longtime construction economist Richard Branch wrote, "Just when you thought it was safe to talk trade... I remember thinking a couple of weeks ago that I was pleased that the rhetoric over trade and tariffs seemed to be cooling off. Discussions were moving forward with other countries and there seemed to be some desire both in the Administration as well as with foreign leaders to talk it out and find common ground to avoid a crippling trade war.

BUT that seemed to go the way of the dodo this week with copper and then additional threats on Canada, Mexico, the E.U. and Brazil. As long as this Sword of Damocles hangs over the heads of businesses and consumers confidence, hiring, and investments will be subdued. And the longer it persists the higher the potential for recession..." said Branch.

Earlier this month, many in the industry were thrilled by the long-awaited passage of the OBBB Act to fund the federal government. Groups that had expressed their support for the legislation included ABC, plus Associated General Contractors of America, the National Association of Home Builders, Air Conditioning Contractors of America , Plumbing-Heating-Cooling Contractors -National Association, Building Owners and Managers Association (BOMA) International, and dozens more, including the American Council of Engineering Companies (ACEC).

Said ACEC President and CEO Linda Bauer Darr: 

“ACEC applauds the passage of this critical legislation that will promote job creation and innovation across the U.S. economy. The extension of the 2017 Tax Law will deliver critical certainty for American businesses. These are pro-growth policies that directly support investment, innovation, and workforce expansion, especially in the engineering sector. 

“Engineering firms play a foundational role in the economy. The ACEC Research Institute found that 82% of firms used their tax savings from the 2017 Tax Cuts and Jobs Act to hire new employees. Firms also invested in technology and expanded their services — investments that had a broader benefit to the nation’s economy. By locking in these provisions, Congress has ensured that firms can continue to create, compete, and grow in communities across America. 

“In addition, this bill includes a long-sought provision by ACEC to permanently restore full deductibility of R&D expenses for engineering firms. Engineering firms are in the innovation business, designing the next generation of American infrastructure, and it was critical to restore the tax code’s traditional role in incentivizing research and development.  

"To be sure, there are challenges with OBBB—ones that we will continue working to remedy—but in terms of long-term business tax policy, the new law fully addresses ACEC’s core priorities.

"While the tax provisions were a big win for ACEC, we were playing defense on other issues, including protecting policies that promote renewable energy projects.  Here, we were also able to achieve some successes. The final version of OBBB dropped a proposed excise tax on wind and solar projects. More importantly, access to a special tax incentive was preserved for wind and solar projects as long as they go to construction within one year of enactment, a major improvement over previous language that would have eliminated support for these renewable energy projects sooner. 

"Incentives for advanced nuclear, geothermal, and hydropower technologies are extended through 2032. Clean hydrogen projects also regain their tax credit if construction starts by January 1, 2028, reversing a previously planned phase-out after 2025. Carbon capture projects qualify for credits if they begin within one year of enactment, with a gradual phase-down until 2032 rather than a 2029 cutoff. The bill also provides more clarity, flexibility and certainty to comply with supply chain requirements.  All told, OBBB is a step forward for our industry."

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Despite those temporary limited wins for wind, solar and other renewables, most in the sustainability and decarbonization community expressed concern about the new direction of federal funding... Said US Green Building Council President and CEO Peter Templeton, "This is an inflection point for our movement... Green building has always been driven by market demand and innovation for higher performance and efficiency. While federal policy has helped more businesses, homeowners, and communities realize these benefits and savings, that leadership now falls to the private sector and state and local governments to ensure our built environment meets future needs and challenges.”

For its part, ASHRAE also has indicated that, as an international society, it remains steadfast and undeterred in advocating for greater sustainability and global sustainability efforts.

So, for the U.S. economy, at least, the road ahead remains as unclear and uneven as the recent stretch that got us here. Let us see what new surprises the summer may yet hold for all of us.

This is Rob McManamy, signing off with HPAC Editor's Notes. Please join us in early August for the next episode of HPAC On The Air. And visit HPAC.com for our Podcast archives. In the meantime, stay cool everyone!