Construction Costs Expected to Continue Rising Through Next Six Months

IHS Markit Procurement Executives Group issues index showing construction cost growth accelerated in September, and expectations for the coming six month's price growth at record high

IHS Markit
Construction costs increased for the 23rd straight month in September, with both materials/equipment and labor sub-indexes showed price increases.
Construction costs increased for the 23rd straight month in September, with both materials/equipment and labor sub-indexes showed price increases.
IHS Markit

Construction costs increased for the 23rd straight month in September, according to IHS Markit and the Procurement Executives Group (PEG). The current headline IHS Markit PEG Engineering and Construction Cost Index registered 62.1, 3.2 points higher than August, indicating prices rose at a faster pace in September compared to August. Both materials/equipment and labor sub-indexes showed price increases.

Price increases for materials and equipment were stronger in nine of the 12 subcomponents in September: the index posted a gain of 2.2 points, rising to 62.9. The indexes were lower in two of the 12 categories compared to last month; 11 out of 12 categories remained above the neutral threshold of 50. The biggest gain was in electrical equipment. The biggest loss was in the index for copper-based wire and cable, for which the index dropped below 50 after almost two years of recording increasing prices.

“Copper is being pummeled by the broadening trade war between the U.S. and China and the threat of weaker Chinese growth,” said John Mothersole, director – pricing and purchasing, IHS Markit. “Inventory, however, has been falling since April and regional warehouse premiums have been rising globally, both signs that fundamentally, the market is tightening. The potential clash between fundamentals and sentiment could make the fourth quarter particularly interesting.”

Current subcontractor labor prices increased at a faster pace this month, with the index rising 5.5 points to 60.3, marking the 14th straight month of increasing prices. Labor costs continued to increase in all regions of Canada and the U.S. The majority of survey respondents signaled current subcontractor labor pricing was unchanged from August, though more respondents experienced higher prices.

The six-month headline expectations for construction costs index reflected expectations of increasing prices for the 25th consecutive month. After falling 12.7 points in August, the index increased 14.4 points to 79.8 in September; reaching the highest level recorded since the six-month expectations index began in 2012. The materials/equipment index increased 11.3 points to 78.9. Expectations for future price increases were widespread, with all material indexes moving above 70.0. Price expectations for sub-contractor labor increased 21.6 points, reversing the 13.4-point drop in August. Labor costs are 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. They also noted activity ramping up in mining and infrastructure.

To learn more about the IHS Markit PEG Engineering and Construction Cost Index or to obtain the latest published insight, please click here.Ihs Markit 5b

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