U.S. construction costs increased in October, according to IHS Markit and the Procurement Executives Group (PEG). The headline IHS Markit PEG Engineering and Construction Cost Index registered 58.5 in October, marking the 36th consecutive month that construction costs have increased. Both the materials and equipment and subcontractor labor indexes indicated continued price increases with readings of 57.3 and 61.6.
Survey respondents reported increasing prices for nine out of the 12 components within the materials and equipment subindex. Within materials, the diffusion index for copper-based wire and cable and carbon steel pipe fell. Prices for fabricated structural steel were flat. Equipment categories including transformers, turbines, pumps and exchangers posted increasing prices, although index figures backed off compared to September. Ocean freight prices to the U.S. from Asia and Europe increased, posting the eighth consecutive month of increases.
“Ocean shipping rates are increasing ahead of the new IMO (International Maritime Organization) sulfur standards taking effect [Jan. 1], despite flagging trade volumes,” said Kayla Bruun, senior economist at IHS Markit. “Capacity is tightening as the major shipping alliances reduce the number of sailings to better match demand, and this trend will continue as vessels are taken offline temporarily to prepare for the fuel switch. Rates will rise higher in 2020 as ships begin using more expensive low-sulfur fuel, the cost of which will be at least partially passed on to consumers.”
The subindex for current subcontractor labor costs reported rising labor costs in all regions of the U.S. as well as Eastern and Western Canada. The diffusion index figure rose again relative to September.
The six-month headline expectations for future construction costs index reflected increasing prices for the 38th consecutive month with the index registering 67.7, a slight dip from September’s 70.7. The six-month materials and equipment expectations index came in at 65.2, down from 73.5 in September. Prices for fabricated structural steel, carbon steel pipe and heat exchangers are expected to be flat, while all the remaining categories are showing price increases. Expectations for subcontractor labor ticked up to 73.1 with labor costs expected to rise in all regions of the U.S. and Western Canada. In the survey comments, respondents noted shortages for welders and truck drivers.