Engineering and Construction Costs Rose for 16th Consecutive Month in February

Engineering and construction costs rose again in February, recording their sixteenth consecutive monthly increase, according to IHS Markit and Procurement Executive Group (PEG). The headline IHS Markit PEG Engineering and Construction Cost Index registered an index score of 75.3 in February, down from 75.8 in January, but still well above the 50 mark, indicating rising prices. The subcontractor labor index fell 9.7 index points to 74.5 in February while the sub-index for materials and equipment costs rose 3.3 index points to 75.6.

February also marks the eighteenth consecutive month of rising shipping costs. Due to these rising shipping costs and limited freight availability, many other sub-indices for components have maintained price increases as well. The sub-index for copper-based wire and cable prices rose again from 73.3 points in January to 79.2 this month. The electrical equipment sub-index also rose from a reading of 78.6 in January to 81.8 in February. The sub-index for transformers came in at a level of 77.3 in February, although this result is lower than the 78.6-point index peak this past December.

Engineering and construction costs rose again in February, recording their sixteenth consecutive monthly increase, according to IHS Markit and Procurement Executive Group (PEG).
Engineering and construction costs rose again in February, recording their sixteenth consecutive monthly increase, according to IHS Markit and Procurement Executive Group (PEG).

“Electrical equipment units remain in tight supply, particularly in the North American market, as a result of prolonged component shortages and high metal input costs,” says David Smith, IHS Markit analyst for electrical machinery and equipment. “One category in particular, transformers, is experiencing the worst of these effects, as manufacturers struggle to acquire grain-oriented electrical steel (GOES) tonnage. GOES steel is on allocation in the United States and is only made at one mill domestically, which has further tightened domestic transformer supply. These high input costs coupled with shipping backlogs will support price increases for electrical machinery through the end of 2022.”

The sub-index for current subcontractor labor costs came in at 74.5 in February, a decline from January’s index figure of 84.2. 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 dropped to 66 in February, though the index continues to signal respondents expect prices to continue increasing through the summer of 2022. The six-month expectations index for materials and equipment came in lower at 56.2, 2.8 index points below last month’s figure. The six-month expectations index for sub-contractor labor declined 5.1 index points this month to 88.8, with respondents expecting labor costs to increase robustly in all regions of the United States and Canada.

The materials reported for shortages this month unsurprisingly referred mostly to electrical steel and electrical equipment components.

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

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