Proposal activity is up. Construction spending is down. Both are real, and the reconciliation isn’t comfortable.
PSMJ Resources’ Net Plus/Minus Index for architecture and engineering proposal activity came in at +23.4 for the second quarter of 2026, up from +20.4 a year earlier, based on 290 AEC executives surveyed July 6 through 23. All 11 client markets PSMJ tracks were positive. Energy and utilities led at +59.6, water and wastewater at +44.6, heavy industry at +41.9.
Over the same window, Census data compiled by the Associated General Contractors show total construction spending down 3.2% in current dollars from June 2025 to June 2026. Private nonresidential fell 4.7%. Public rose just 1.7%, against 7.3% growth the prior 12 months.
A rising proposal index isn’t necessarily good news
Ken Simonson, AGC’s chief economist, gave the reading that should stick with people: a rising proposal index may not mean more work. It may mean thinner order books forcing firms to chase jobs they’d have passed on two years ago.
PSMJ’s own benchmark data supports the darker interpretation. Its 2026 AE Financial Performance Benchmark Survey, covering 318 firms at year-end 2025, found median backlog growth collapsed to 5.0% from 11.1%. Backlog as a share of annual net revenue fell to 92.6% from 103.8%, dropping below a full year of revenue for the first time this cycle.
Margins are at a record anyway
Median operating profit before bonuses and taxes reached 20.5% of net revenue, up from 19% and the highest in PSMJ’s historical series. Median achieved direct labor multiplier rose to 3.43 from 3.37, above the median target of 3.29. Direct labor cost per hour rose 5%. Staff growth ran 7.4%, net revenue per employee $195,224, operating profit per employee $38,881.
Firms got better at pricing during the backlog boom and they’ve kept the discipline. That’s a genuine structural gain, not a cyclical one.
But margins are a lagging read on work already booked. The backlog ratio is the leading one, and it just went under 100%.
The transportation number is the warning
Transportation dropped 14.9 points year over year and stayed positive only barely. That’s IIJA moving past its peak obligation years with no successor bill and no WRDA locked in. Design firms feel that first, in proposals. General contractors and subs feel it 12 to 18 months later, in bid counts.
Construction production and nonsupervisory workers saw average hourly earnings rise 5.2% from July 2025 to July 2026, against 3.2% across the private sector. Wage pressure isn’t easing into a softening market, which is the part that makes this cycle awkward.
One sourcing note: the Q2 index figures come from ENR’s reporting on an advance copy. PSMJ’s full report is scheduled for release around August 19.
Compare with The Geneva conversion in Washington, where the work is getting financed through channels that didn’t exist in the last cycle.