Shortages in Construction Labor Drive Engineering and Construction Costs Higher in March

Index readings for materials and labor prices indicate widespread cost increases

IHS Markit
Ihs Markit

Construction costs continued to increase in March, according to IHS Markit and the Procurement Executives Group (PEG). The current headline IHS Markit PEG Engineering and Construction Cost Index registered 60.4 this month, a notable uptick from February’s reading of 55.3. Index readings at almost 60 for both materials and labor indicate price increases continue to be widespread.

Materials and equipment prices rose to 60.7 in March from 54.9 in February with price increases recorded in ten of the 12 subcomponents. Survey respondents reported falling prices for fabricated structural steel and carbon steel pipe; all other categories ranging from turbines to transportation registered price increases.

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The sub-index for current subcontractor labor costs came in at 59.7, up from 56.3 in February. Labor costs rose in all regions of the United States and stayed flat in both Western and Eastern Canada.

“U.S. construction labor markets remain incredibly tight and shortages are widespread - even firms that are willing to raise wages and offer bonuses are having trouble finding experienced workers,” said Emily Crowley, principal economist, Pricing and Purchasing, IHS Markit. “A hollowing-out of the U.S. construction workforce during the great recession means there are fewer mid-career workers available to replace retirees. The recent uptick in oil and gas activity is also creating additional strain on labor markets on the U.S. Gulf Coast.”

The six-month headline expectations for construction costs index reflected increasing prices for the 31st consecutive month. The materials/equipment index came in at 66.1 in March after reaching 70.6 in February. Price increase expectations were also widespread with expectations for sub-contractor labor rising to 68.1 in March, up from 60.3 in February and labor costs expected to rise in all regions of the U.S. and Canada.

In the survey comments, respondents indicated a tight labor market for all skilled trade workers.

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