Construction costs rose again in February, according to IHS Markit and the Procurement Executives Group (PEG). The current headline IHS Markit PEG Engineering and Construction Cost Index registered 58.9, up 2.6 points compared to January. Both materials/equipment and labor sub-indexes came in above 50.
The materials/equipment price index posted a 57.4 figure in February, falling from the stronger January figure of 58.9, indicating prices rising at a slightly slower pace in February. Pumps and compressors joined turbines and heat exchangers in the group experiencing lower prices; prices rose in the other nine categories. The previous month’s large gains in the fabricated structural steel, alloy steel pipe, and ocean freight indexes were met with lower figures in February, though they remained above 50. The transformers index posted the largest gain, offsetting a decline in January.
Current subcontractor labor prices experienced broad gains in February, registering 62.2, up from 50.3 in January. Labor costs were up in all regions in the United States. After mixed results in January, labor costs picked up in both Eastern and Western Canada in February.
“With construction unemployment at 8.4 percent in January, labor markets in the industry are the tightest they have been since 2000, resulting in increased competition for skilled and experienced workers,” said Emily Crowley, principal economist – pricing and purchasing, IHS Markit. “On top of this, the energy rebound is putting additional demand on regional markets for skilled workers such as welders and equipment operators. We expect wages in the construction industry to continue to experience above average gains as labor supply lags behind demand.”
The six-month headline expectations index recorded another month of increasing prices: the index moved up from 67.5 in January to 73.3 this month, the highest level since April 2012. The materials/equipment index remained strong at 73.3, posting a significant gain from January’s reading of 69.9. Expectations for future price increases were widespread, with index figures for every component well above neutral. Price expectations for sub-contractor labor came in at 73.2, a sharp climb from 61.7 in January. Labor costs are expected to rise in all regions of the United States and Canada.
In the survey comments, respondents indicated an outlook for increased activity in 2018. They also highlighted concerns about labor shortages.
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