Engineering and Construction Costs Stall in November

Engineering and construction costs contracted in November, 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 the engineering, procurement and construction sector declined to 48.7 in November, from 58.8 in October, posting its first sub-50 reading since October 2020. The sub-indicator for materials and equipment costs decreased by 9.6-points to 49.2 in November, while the sub-indicator for subcontractor labor costs decreased by 11.4-points to 47.6.

The materials and equipment indicator pushed lower in November, reaching its lowest level since December 2022. Nine of the twelve components decreased compared to last month, partially offset by an increase in one component, alongside two that remained unchanged. Although a few categories saw notable changes, most respondents highlighted prices remaining the same compared to what has been seen in recent months. The largest declines were seen from alloy steel pipe, carbon steel pipe, turbines and electrical equipment, each posting decreases of 20-points or greater. Meanwhile, milder decreases were seen from fabricated structural steel, shell and tube heat exchangers, transformers and ocean freight. Unchanged readings were seen from redi-mix concrete and ANSI pumps and compressors. Providing the greatest offset to the broader weakness in November was an 18.8-point increase seen in copper-based wire and cable.

“Over the past month, copper markets were spooked when production guidance was downgraded at several mines,” said Jason Kaplan, Economics Director, S&P Global Market Intelligence.  A refined copper supply-demand balance that was already seen moving into deficit in 2028, now looks set to be in the red from 2027.”

The sub-indicator for current subcontractor labor costs experienced a further pullback in November, decreasing to 47.6 after a reading of 59.0 last month, marking its first sub-50 reading since October 2020. Despite this decrease, most categories remain unchanged at readings of 50.0. The only categories that remain above neutral are in the U.S. South region, highlighted by a 25.0-point increase in mechanical contractors and an 8.3-point increase seen from instrumentation and electrical contractors, each recording a 75.0 reading in November.

Providing a mixed tone to the survey, the six-month headline expectations for future construction costs indicators saw a more modest decrease to 69.9 in November. The six-month expectations indicator for materials and equipment came in at 75.4, which is 1.3-points higher than last month’s figure. Six of the twelve categories saw increases in November, highlighted by increases in ANSI pumps and compressors and turbines, posting increases of 16.1-points and 16.7-points, respectively. Milder gains were also seen from alloy steel pipe, shell and tube heat exchangers and ocean freight. Providing downward pressure to the outlook were declines in copper-based wire and cable, electrical equipment, transformers, redi-mix concrete and carbon steel pipe. This was accompanied by no change in the outlook for fabricated structural steel.

Meanwhile, the six-month expectations indicator for subcontractor labor less supportive results in November though most categories held near the 50-mark, with the lone exception being upward pressure seen in the U.S. South. On balance, the overall sub-contractor labor outlook reading pushed lower to 57.1 in November, contrasting the 88.5 reading seen the month prior.

Respondents reported few shortages this month, largely confined to electrical equipment. Market commentary continued to note an increase in service RFPs and that the U.S. market appears to be more active.