Construction costs increased for the 21st straight month in July, according to IHS Markit (Nasdaq: INFO) and the Procurement Executives Group (PEG). The current headline IHS Markit PEG Engineering and Construction Cost Index registered 68.0, 1.4 points higher than in June. Both materials/equipment and labor sub-indexes came in above 50, indicating rising prices.
Price increases for materials and equipment were stronger across the board in July; the index posted a gain of 0.4 points, reaching 69.5. The indexes were higher in eight of the 12 categories, though all 12 were above the neutral threshold of 50. The indexes fell for copper-based wire, heat exchangers and ocean freight. The biggest gains were in the indexes for concrete, transformers and pumps and compressors while the steel index had the highest reading.
“Steel prices in the U.S. are at or near peak levels. What little relief is on the way will come later this year,” said John Anton, director, pricing and purchasing, IHS Markit. “Pipe and tube prices have not peaked, but will climb through the rest of the year. If you buy from Brazil, Argentina or South Korea, you may need to find additional suppliers; supply shortages are ongoing in rebar, angles, pipe, and tube.”
The current subcontractor labor index expanded at a faster rate this month compared to last; the index increased 3.7 points to 64.4, marking the 12th straight month of increasing prices. Labor costs continued to increase in all U.S. regions, with the Northeast experiencing the biggest rise in the index. After staying in neutral territory for a second consecutive month in June, the labor cost index for Eastern Canada returned to the positive threshold. The index for Western Canada also increased.
The six-month headline expectations for construction costs index increased for the 23rd consecutive month; the index moved up 3.3 points to 78.0, the highest level recorded in the nearly six-year life of this survey. The materials/equipment index rose 3.0 points higher to 79.9. Expectations for future price increases were widespread. Price expectations for sub-contractor labor increased 4.0 points, coming in at 73.6. Labor costs are expected to rise in all regions of the U.S. and Canada.
In the survey comments, respondents indicated an expectation of a shortage of truck drivers, welders, and quality inspectors in 2018. They also continued to highlight concerns about rising prices and uncertainty stemming from developments in U.S. trade policy.
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