U.S. construction costs increased for the 31st consecutive month in May on increases in both labor and materials prices, according to IHS Markit and the Procurement Executives Group (PEG). The current headline IHS Markit PEG Engineering and Construction Cost Index registered 63.8 this month, a slight uptick from April’s reading of 58.2. The materials and equipment index rose to 65.4 in May while the subcontractor labor index also increased, hitting 60.1. Both current and expected prices for materials and labor remain firmly in positive territory, indicating continued price increases.
Survey respondents reported increasing prices for 11 components within the sub-index for current materials and equipment costs. After showing falling prices for five consecutive months, carbon steel pipe prices were flat in May.
Ready-mix concrete prices have been in the expansion territory all year, except for January, when prices were reported flat. “Nationally, concrete prices are growing 2 percent year-over-year, though rates are close to 3 percent in regions such as the southern United States, where demand is higher,” said Deni Koenhemsi, senior economist, pricing and purchasing, IHS Markit. “However, if we look at the final price of the delivered product, incorporating labor and overhead costs, we see an increase of 8 percent year-over-year nationally and 11 percent in the southern United States. This is indicative of factors outside of material shortages – a tighter labor environment, truck shortages and regional demand – driving the price increases.”
The sub-index for current subcontractor labor costs came in at 60.1, up from 56.0 in April. Labor costs rose in all regions of the United States and stayed flat in both Western and Eastern Canada.
The six-month headline expectations for future construction costs index reflected increasing prices for the 33rd consecutive month, with the index jumping from 71.8 in April to 76.0 in May. The six-month materials and equipment expectations index registered 74.6 this month, up from 70.6 last month; expectations for sub-contractor labor rose to 79.5 in May, up from 74.6 in April, with labor costs expected to rise in all regions of the U.S. and Canada.
In the survey comments, respondents indicated a tight labor market for all skilled trade workers.