Engineering and Construction Costs Continued to Rise in April

Engineering and construction costs continued to rise in April, according to IHS Markit, now a part of S&P Global, and The Procurement Executives Group (PEG). The headline IHS Markit PEG Engineering and Construction Cost Index, a leading indicator measuring wage and material inflation for the engineering, procurement and construction sector, reached a new index high of 88.5 in April, up from 85.5 in March. The subcontractor labor index rose 5.9 index points in April to 85.2 from 79.3 in March, while the sub-index for materials and equipment costs rose 1.7 index points to 89.8. 

Engineering and Construction Costs Continued to REngineering and construction costs continued to rise in April, according to IHS Markit, now a part of S&P Global, and The Procurement Executives Group (PEG).

Shipping costs rose for the 20th consecutive month in April, with both routes from Asia and Europe to the United States totaling index levels of 86.4 and 89.8, respectively. The sub-indexes for metals prices surpassed the previous peaks set in March. The structural steel sub-index rose from 79.2 in March to 91.7 in April. The sub-index for carbon steel pipe rose 8.3 sub-index points to 95.8. The sub-index for alloy steel pipe remained at a level of 95.8 in April.

“Rising demand and low inventory levels were driving tight supply conditions for steel pipe prior to the Russian invasion of Ukraine,” explains Amanda Eglinton, associate director, S&P Global Market Intelligence. “The market will have to adjust to the loss of Russian and Ukrainian pipe exports over the next few months. Pipe production in North America and Asia is likely to rise to compensate for lower tonnage out of Europe, but it will take time to rebuild inventories while demand is simultaneously increasing, and shipping and logistics issues continue.” 

The sub-index for current subcontractor labor costs came in at 85.2 in April, an increase from March’s index figure of 79.3. According to survey responses, labor costs continued to rise in all regions of the United States and Canada. 

The six-month headline expectations for future construction costs index rose to 79.7 in April, illustrating respondents expect prices to continue increasing well into the third quarter of 2022. The six-month expectations index for materials and equipment came in at 75.7, 0.3 index points lower than last month’s figure but still well above the 50-point mark indicating price increases. The six-month expectations index for sub-contractor labor increased 10 index points this month to 89.1, with respondents expecting labor costs to rise significantly by the fall in all regions of the United States and Canada.

Respondents continued to report material shortages in April, also referencing longer lead times, and citing shortages in electrical steel and electrical equipment generally.

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