Engineering and Construction Costs Accelerating in August

Engineering and construction costs continued to increase in August with more respondents seeing higher prices, according to the Engineering and Construction Cost Indicator from PEG and S&P Global Market Intelligence. The headline Engineering and Construction Cost Indicator, a leading indicator measuring wage and material inflation for engineering, procurement and construction, increased in August to 73.5 from 67.6 in July. Specifically, the sub-indicator for materials and equipment costs increased to 76.5, while the sub-indicator for subcontractor labor costs decreased to 66.7.

The materials and equipment indicator edged slightly higher in August, rising to 76.5 from 74.6 in July, a gain of 1.9 points. Despite mixed movements across categories, all components remained above the 50-point threshold, signaling continued price increases across the board. Redi-mix concrete and turbines led all components with a reading of 90.0, followed closely by copper-based wire and cable, transformers, and electrical equipment (switchgear/MCCs), each at 83.3. On the softer side, Ocean freight – Asia to U.S. posted the weakest reading at 50.0, sitting right at the expansion threshold. Carbon steel pipe and alloy steel pipe posted the largest gains, each rising 25.0 points. With trade flows through the Strait of Hormuz still constrained amid unresolved US-Iran tensions, most categories remain exposed to elevated logistics, energy, and feedstock costs, and the S&P Global Market Intelligence Materials Price Index is expected to remain roughly 20% above 2025 levels by the fourth quarter of 2026 before gradually easing through 2027.

The subcontractor pricing sub-indicator rose sharply by 15.6 points to 66.7 in August, signaling broader pricing pressure. While Northeast and Midwest categories held at the neutral 50.0 mark, several regions surged: U.S. South I&E rose to 75.0, and U.S. West, Western Canada, and Eastern Canada Civil, Mechanical, and I&E categories jumped to 100.0, meaning every respondent reported higher prices. This points to intensifying cost pressure across engineering, procurement, and construction (EPC) trades. It aligns with the July BLS jobs report, which showed payroll growth slowing even as construction employment kept adding jobs — suggesting persistent labor demand in construction is reinforcing subcontractor pricing pressure despite broader labor market softening.

“Ready-mix concrete prices remain elevated, supported by firm cement, labor, transportation, and energy-related operating costs,” said Ashika Jugwanth, Senior Economist at S&P Global Market Intelligence. “While broader construction demand is mixed, infrastructure and manufacturing-related activity continue to provide support in parts of the U.S. market. As a result, prices are likely to remain sticky, even if the pace of increase has moderated compared with earlier periods.”

The six-month headline expectation for future construction costs rose to 79.6 in August from 76.1 in July. Materials and equipment cost expectations also strengthened, with the diffusion index increasing 3.3 points to 80.1. All components remained above the 50.0 threshold, showing that respondents broadly expect prices to rise over the next six months. Shell and tube heat exchangers led the category at 91.7, followed by redi-mix concrete and gas/steam turbines, both at 90.0. Fabricated structural steel recorded the largest month-over-month gain, rising 25.0 points to 83.3. Ocean freight from Europe to the U.S. posted the weakest reading at 50.0, down 10.0 points from July, while ocean freight from Asia to the U.S. held steady at 60.0. Overall, respondents expect meaningfully higher prices across nearly all equipment and material categories, with freight costs remaining the main area of relative softness.

The six-month subcontractor pricing expectation index rose 3.9 points in August to 78.3, remaining well above the neutral 50.0 threshold. Mechanical and I&E trades in the U.S. Northeast, Midwest, and West, along with Western Canada Mechanical and Eastern Canada I&E, reached 100.0. U.S. South I&E followed at 87.5, while Midwest Civil stood at 75.0. Civil trades were generally softer, holding at 50.0 in the Northeast, West, both Canadian regions, and Eastern Canada Mechanical. Overall, respondents continue to expect firm subcontractor price increases, though Civil disciplines show more moderate expectations than Mechanical and I&E.

Respondents cited growing labor shortages as data center construction accelerates, stretching skilled trades. Lead times for transformers and isophase bus continue to lengthen, and supply constraints remain for fabricated steel and electrical equipment. Together, these pressures point to elevated execution risk despite continued project momentum through the second half of 2026.