Construction Costs Rise for 28th Straight Month in February

Materials costs see uptick as 2018 price hikes filter downstream

Ihs Markit Peg Engineering And Construction Cost Index

Construction costs continued to increase in February, according to IHS Markit and the Procurement Executives Group (PEG). The current headline IHS Markit PEG Engineering and Construction Cost Index registered 55.3 this month, a slight uptick from January’s reading of 54.4. Index readings well above 50 for both materials and labor indicate price increases continue to be widespread.

Materials and equipment prices rose in February, with the sub-index rising from 53.9 in January to 54.9, with price increases recorded in eight of the 12 subcomponents. Similar to last month, steel categories had weak or flat pricing: prices for alloy steel pipe remained the same, while prices for fabricated structural steel and carbon steel pipe fell. Prices for one component, ocean freight from Asia to the U.S. stayed flat. Index figures increased significantly for downstream products such as pump and turbines.

“While steel costs are coming down right now, price hikes from the summer and fall are now filtering down to turbines and pumps,” said Thomas McCartin, senior economist, pricing and purchasing, IHS Markit. “Steel prices are an important input cost for these products. Higher input costs, coupled with increasing demand from the energy industry, are putting upward pressure on these materials.”

Current subcontractor labor costs registered increases once again, with the index moving up from 55.7 in January to 56.3 in February. Labor costs rose in most regions of the United States, except for the U.S. Northeast. In Canada, both the Eastern and Western parts of the country registered rising labor costs.

The six-month headline expectations for construction costs index reflected increasing prices for the 30th consecutive month. The materials/equipment index increased in February after slipping for the previous two months. The six-month pricing expectation for material and equipment sub-index was strong, reaching 70.6 in February, up from 61.8 in January. Price increase expectations were widespread. Expectations for sub-contractor labor also stayed positive at 60.3, although the sub-index figure was less than last month. Labor costs are expected to rise in all regions of the U.S. and Western Canada, while they are expected to stay flat in Eastern Canada.

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

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