Engineering and construction costs increased again in August, according to the Engineering and Construction Cost Indicator from PEG and S&P Global Market Intelligence. The headline Engineering and Construction Cost Indicator, a leading indicator measuring wage and material inflation for the engineering, procurement and construction sector declined 4.6 points to 60.7 this month. The sub-indicator for materials and equipment costs fell 3.8 points to 59.8 while the sub-indicator for subcontractor labor costs moved down to 62.9 in August from 69.3 in July.
The materials and equipment indicator saw a modest decrease in August but continues to show rising prices. Only six of the 12 components decreased compared to last month, but the magnitude of the decreases was on average much larger than the increases. The primary drivers of the net decline were the 17.0- and 31.9-point declines for transformers and ocean freight from Europe to the U.S. respectively. On the other hand, only copper-based wire and cable saw a double-digit increase, up 11.9-points to 83.3 this month. Shell and tube heat exchangers and pumps and compressors each saw modest declines to neutral readings of 50.0 in August. Meanwhile, all three steel categories—carbon pipe, alloy pipe and fabricated structural—remain in contractionary territory this month with readings between 38.9 and 44.4.
“Despite recent relative weakness, North American steel may have the firmest steel pricing globally, supported more by production restraint and tariffs than by booming demand,” said John Anton, Economics Director, S&P Global Market Intelligence. “Construction steel consumption and prices crashed in mainland China, dragging down all of Asia and to some extent Europe. U.S. mills are doing an excellent job of matching steel production to construction demand. Rebar, structurals and wire rod prices are trending downward from very high levels, with a bottom likely by the end of the year. Sheet steel spiked in November 2022-February 2023, and again in November 2023-January 2024. We expect another spike this year so buy in September, October at the latest.”
The sub-indicator for current subcontractor labor costs also saw a moderate decline, down 6.4-points compared to last month. This came as a result of fairly significant declines in the U.S. Northeast, Midwest and South regions more than offsetting increases in the U.S. West and Western Canada regions. Readings for mechanical and instrumentation and electrical workers in the U.S. Northeast, Midwest and South each saw double-digit decreases to readings between 58.3 and 66.7 this month. Subcontractor labor in the civil industry saw smaller declines in each of these regions. Meanwhile, modest increases in the U.S. West and Western Canada resulted in readings of 66.7 for all industries, with the exception of instrumentation and electrical workers in the U.S. West, which had a reading of 83.3. All labor categories in Eastern Canada were at neutral reading of 50.0 in August.
The six-month headline expectations for future construction costs indicator decreased significantly to 56.1 in August. The six-month expectations indicator for materials and equipment came in at 57.7, 16.4 points lower than last month’s figure, more than fully offsetting the 11.7-point increase in the same category last month. All 12 categories saw price expectations decrease this month. The largest decreases were seen for carbon steel pipe, down 34.8-points, fabricated structural steel, down 34.8-points, copper-based wire and cable, down 24.6-points and alloy steel pipe, down 21.4-points. Following these declines, alloy steel pipe expectations are now neutral at 50.0 and carbon steel pipe and fabricated structural steel are both in contractionary territory at 43.8. Expectations for both ocean freight categories saw the smallest movements, down just 1.2-point and 0.7-points for routes from Asia and Europe respectively to the U.S.
The six-month expectations indicator for sub-contractor labor saw a sizeable decline this month, down to just 52.3 after five consecutive months above 70.0. All regions and industries in the U.S. saw declines this month and now sit at 50.0. Eastern Canada also saw a decline for instrumentation and electrical labor, joining the other two labor categories at a neutral reading of 50.0. Western Canada was the lone spot of tightness, seeing increases in all categories to readings of 75.0.
Respondents continue to report some shortages for electrical equipment and electricians. They also noted increases in conventional power project proposals and a related slowing in solar project proposals, as well as concerns related to shipping from Asia and the lingering impacts of diversions from the Red Sea.
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