Construction Labor Costs Stabilize as Projects Halted Due to COVID-19 Start Back Up

After two months of falling labor costs, the sub-index for current subcontractor labor indicates costs are on the rise

Man Wearing Blue Hard Hat Using Hammer 544966

Engineering and Construction costs fell in June, according to IHS Markit and the Procurement Executives Group (PEG). The current headline IHS Markit PEG Engineering and Construction Cost Index registered 49.0 in June, falling just short of the neutral mark 50; a neutral index reading indicates responders see no change in pricing. The materials and equipment portion of the index came in at 47.2, still indicating falling prices, while the sub-contractor portion came in at 53.2, signaling rising costs.

The materials and equipment sub-index recorded the fourth consecutive month of falling prices. Survey respondents reported falling prices for six out of the 12 components with only ready-mix prices increasing. Ocean freight (from Asia to The U.S. and Europe to The U.S.) continued the trend of flat pricing in June. Electrical equipment, alloy steel pipe and copper-based wire and cable also registered flat prices this month. Prices for the remaining six categories fell. With the exception of freight, all categories’ index figures rose relative to May, illustrating that although the majority of respondents noted falling prices, there were few more responders who registered price increases.

IhsAfter two months of falling labor costs, the sub-index for current subcontractor labor came in at 53.2 in June, indicating higher costs. Labor costs rose in the U.S. Northeast, Midwest and West; they fell in the U.S. South. Labor costs continued to fall in both Eastern and Western Canada.

“Construction activity has picked up over the past two months as lockdowns have been lifted. In April, the construction industry lost nearly 1 million jobs; however in May, we saw nearly half of those jobs come back as restrictions were lifted and workers returned to worksites, albeit with new safety precautions to limit exposure to COVID-19,” said Emily Crowley, associate director, Pricing and Purchasing, IHS Markit. “Construction labor markets were facing shortages prior to the economic downturn which will limit any downside correction on wages, though we may see cuts to discretionary bonuses going forward as delays lead to a thinner pipeline of new projects, taking pressure off of labor demand in the industry.”

The six-month headline expectations for future construction costs rose in June with an index figure of 52.8, recovering from an all-time low last month. Both the materials/equipment and labor subcomponents recorded expectations of future price increases. The six-month materials and equipment expectations index came in at 53.5 this month, up from 39.9 last month, with responders expecting increasing prices for seven out of 12 categories. Expectations for sub-contractor labor registered 51.2 in June. While the U.S. West is expected to see higher labor costs in six months, labor costs are expected to stay flat in the other regions of the U.S. and both regions of Canada.

In the survey comments, respondents continued to note lower demand conditions due to the novel coronavirus (COVID-19)..

To learn more about the IHS Markit PEG Engineering and Construction Cost Index or to obtain the latest published insight, please click here.