Construction costs fell for the 22nd month in a row in October, according to IHS Markit and the Procurement Executives Group (PEG). The headline current IHS PEG Engineering and Construction Cost Index registered 48.7 this month, up from 48.1 in September. Both labor and materials sub-indexes recorded soft prices, keeping the headline figure below the neutral mark.
This month, the current materials/equipment price index came in at 48.8. Since April, this sub-index has been oscillating between 47 and 50, a reflection of the volatility in commodity markets. More than half of the categories in materials sub-index showed falling prices, with three showing rising prices; prices remained unchanged in two categories. Ocean freight from Asia to the U.S. is one of the components that have seen higher index figures in the last two months.
"The uptick in current prices and the jump in six-month pricing expectations for ocean freight from Asia reflects a rational concern among customers about rising rates,” said Paul Robinson, principal economist at IHS Pricing and Purchasing. “The Hanjin bankruptcy continues to weigh on the shipping industry and is aiding the upward pressure. However, in the end it will be fuel price increases, much more so than any possible supply contraction from the Hanjin bankruptcy, that will guide ocean freight rates higher."
The current subcontractor labor index fell once again in October; however, labor costs were not as soft as September, with the index figure rising from 43.7 to 48.5. The sub-index recorded its sixth consecutive month below the neutral mark. In the United States, subcontractor labor costs were mixed in all regions. The plunge in oil and gas investment continues to put downward pressure on wages despite a relatively tight labor market across the United States. In Canada, labor costs came in mixed for Western and Eastern regions.
The six-month headline expectations index recorded increasing prices, with the index moving from 51.4 in September to 55.4 in October. The materials/equipment index rose from 52.9 to 56.5 this month, affirming expectations of higher future prices. Nine components showed rising prices; three were neutral. There were no expectations for softer materials prices.
Similar to the materials index, sub-contractor labor price expectations came in higher in October. The sub-index moved up from 47.9 in September to 53.0 this month. In the United States, some price pressure is expected for all regions, with higher pressure in the Midwest and West. In Canada, labor prices for the Eastern region are mixed, while labor costs are still expected to be soft in Western Canada.
In the survey comments, respondents have noted no shortages in supply of materials. Proposal activity has registered an uptick in recent months, but participants remain cautious.
