Engineering and Construction Costs Increased for 20th Consecutive Month in June

Engineering and construction costs increased again in June, 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, fell to an index level of 76.7 this month from 79.1 in May; June’s reading is still well above the breakeven 50 mark, indicating rising prices. The subcontractor labor index rose 3.3 index points in June to 89.1 from 85.8 in May, while the sub-index for materials and equipment costs fell 4.8 index points to 71.4. 

The sub-indexes for metals prices eased further this month with the structural steel, carbon steel pipe, alloy steel pipe and copper-based wire and cable sub-indexes falling to 58.3, 62.5, 62.5 and 66.7, respectively. Shipping costs rose for the 22nd consecutive month in June, though respondents indicated price increases were less widespread: the index for routes from Europe to the United States eased from an index level of 81.8 in May to 72.7 in June while the index for routes from Asia to the United States eased from 72.7 in May to 68.2 in June.

“Although index levels have eased, ocean going shipping prices will face upward price pressure for the remainder of 2022 due to global supply chain disruptions and rising energy costs,” explains Tal Dickstein, senior economist, S&P Global Market Intelligence. “Pricing risk remains to the upside due to uncertainty surrounding ILWU negotiations on the U.S. west coast, low chassis availability, as well as equipment and labor shortages.”

The sub-index for current subcontractor labor costs came in at 89.1 in June, another monthly increase from May’s index figure of 85.8. 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 also fell to 72.9 in June. The six-month expectations index for materials and equipment came in at 70.3, 2.6 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 declined 16.5 index points this month to 79.1. Although labor costs will continue to rise, cost increases will become less widespread by year’s end in all regions of the United States and Canada.

Respondents continued to report material shortages in June, particularly for electrical steel, electric components and pipes.

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