April Sees Continued Rise in Engineering and Construction Costs

Engineering and construction costs continued to increase in April, 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 increased again in April to 78.1 from 69.2 in March. This means that prices are still increasing for this sector in April, and specifically the sub-indicator for materials and equipment costs increased by 6.2 points to 80.1, while the sub-indicator for subcontractor labor costs increased the most to 73.5 in April from 58.3 representing a 15.2-point increase.

The materials and equipment indicator continued to grow faster in April, with increases reported in nine out of the twelve tracked components compared to March. The most significant gains were observed in ocean freight from Asia and Europe to the US, demonstrating the effects of the Middle East war on transportation and logistics costs. These components scored above 90.0, with Asian freight achieving the highest score. Steel saw increases of more than 10 points, arriving in above 75 scores in the three categories: fabricated structural steel, carbon pipe and alloy pipe. Notably, copper-based wire and cable saw a 30-point decrease despite being one of the fastest growing components in previous months.

“A reacceleration of construction labor cost growth is the product of pockets of high demand in areas facing skilled labor shortages,” said Lauren Ottley, Research Economist at S&P Global Market Intelligence. “The AI boom is supporting whirlwind construction of data centers alongside the infrastructure needed to support them. With data centers building out their own energy infrastructure, demand is spilling over past the walls of the centers — but the supply of skilled electricians, plumbers, and HVAC construction workers needed for these projects is limited. These workers are earning enough of a premium to push the wage growth outlook up, even as overall construction demand remains weak. Looking forward, renewed inflation—a result of the war in the Middle East—is providing some upward pressure on wage growth but passthrough will be limited by the relatively loose labor market and a potential weakening of demand.”

The sub-indicator for current subcontractor pricing rebounded to 73.5 in April following a decrease in March. This resurgence underscores tightness in the US labor market. The indicator remains above the 50.0 threshold signaling persistent price increases across all surveyed categories. Regionally, the highest price inflation was observed in the US West, Canada West, and Canada East. The I&E sector in these geographies registered a maximum score of 100, indicating exceptionally strong cost pressures. The South also reflected this trend, scoring 60.0 points. Overall, the data reveals an accelerating growth trend in subcontractor pricing, consistent with a tightening market for skilled labor and specialized services.

The six-month headline expectation for future construction costs fell to 75.7 in April from 87.0 in March. The outlook for materials and equipment costs also declined, with the indicator dropping 9.2 points to 75.8. Although all categories remained above the 50-point mark, and electrical equipment expectations rose by 9.5 points, there were significant decreases in other areas. Notably, expectations for shell and tube heat exchangers and Redi-Mix Concrete dropped by 28.6 points, signaling a slowdown in the 6-month outlook. Steel components are also expected to drop, but at a slower pace.

The six-month expectations indicator for subcontractor labor costs decreased to 75.5 in April from 91.7 in March. The Midwest saw the most significant decrease in the six-month outlook, with its civil and I&E categories falling by 33.3 points. In the U.S. West, Western Canada, and Eastern Canada, the civil, mechanical, and I&E categories all experienced a 25.0-point decrease. Despite these declines, the overall outlook for subcontractor labor costs remains above the 50.0 mark, indicating continued growth across all categories.

Respondents highlighted widespread labor shortages, particularly for millwrights, and significant supply chain volatility. They noted price increases of over 100% for some workstations and servers, with continued price instability expected. Additionally, respondents commented on high demand for power-related work and the immediate impact of geopolitical events on material costs, such as the increase in HDPE prices following the conflict in Iran.

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