Construction Materials and Equipment Cost Escalation Hit Lowest Level This Year

Construction costs rose again in June, according to IHS Markit and the Procurement Executives Group (PEG). The headline IHS Markit PEG Engineering and Construction Cost Index registered 51.5, down from 54.0 in May, indicating less broad price increases across the industry. Both the material/equipment and labor categories continue to record higher prices.

The materials/equipment price index came in at 51.3 in June, its lowest level in seven months. Price increases were uneven with only six of the 12 categories tracked in the materials sub-index showing higher prices, three categories registered flat pricing, and three had falling prices. Since February, materials/equipment prices have been either flat or rising; this trend has reversed in June, with concrete and ocean freight indicators coming below 50. Although structural steel and steel pipe prices have backed off from this spring’s peaks, anxiety about the pending Section 232 trade case decision continues.

“Steel pipe prices have peaked for the time being and prices for certain products have started to fall,” said Amanda Eglinton, senior economist at IHS Markit. “However, there is still tightness in products such as oil country tubular goods (OCTG) and line pipe, where demand remains elevated. There is high potential for further tightening pending the outcome of the Section 232 trade case. If pipe is included in the scope of this case and imports are restricted, prices will spike again and supply will be very tight. If pipe is not included, steel pipe prices will continue to soften with lower steel input costs.”

The current subcontractor labor index rose in June, with the index coming in at 52.0, slightly above May’s figure of 51.3. Regionally, the U.S. Northeast and South had rising labor costs, while the U.S. Midwest and West showed flat labor market conditions. The overall index was pulled down by Canada once again, where labor costs fell in both Eastern and Western regions.

The six-month headline expectations index recorded another month of increasing prices. The index moved up from 60.6 in May to 63.5 in June. The materials/equipment index stayed positive, at 63.5. Ten consecutive months of rising prices affirm widespread expectations of future higher costs. Unlike current material/equipment prices, expectations for future price increases were more widespread, with index figures for every component coming in strongly above neutral. Sub-contractor labor price expectations came in at 63.5 in June, the highest in the last five months. Labor costs are expected rise in all regions of the United States and Canada.

In the survey comments, participants noted mixed proposal activity despite a strong proposal activity index figure. Some respondents have noted shortages and diminishing inventories for steel pipe.

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