Engineering and Construction Costs in June Continue to Rise but Momentum Slows

Engineering and construction costs are still increasing in June but less respondents are 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 the engineering, procurement and construction, decreased again in June to 67.8 from 75.3 in May. Specifically, the sub-indicator for materials and equipment costs decreased by 10.6 points to 74.7, while the sub-indicator for subcontractor labor costs decreased to 51.9 from 52.1 points in May.

The materials and equipment indicator softened in June, with the overall diffusion index declining 10.6 points to 74.7 compared to May. Despite the broad retreat, most components remained above the 50-point threshold, signaling continued price increases across the board. Alloy Steel Pipe and Copper-based Wire and Cable led all components with readings of 85.7, while Ocean Freight routes from both Asia and Europe to the U.S. remained elevated above 83. On the softer side, Turbines and Redi-Mix Concrete posted the weakest readings at 58.3 and 60.0, respectively. Electrical Equipment saw the sharpest monthly decline, dropping 28.6 points, though still holding above 70. Most categories are affected by increased logistical and transportation costs due to the Middle East war. Even if the war ends now, it will take several months for prices and supply constraints to return to pre-conflict levels.

The subcontractor pricing sub-indicator remained virtually unchanged in June, edging down just 0.2 points to 51.9. The reading sits just above the 50.0 threshold, suggesting that subcontractor prices are barely expanding — hovering near neutral territory across nearly all surveyed categories and regions. In fact, all regions and disciplines recorded exactly 50.0, with the sole exception being the U.S. South I&E sector, which posted a 66.7 reading — the only category where a greater portion of respondents reported higher pricing. Overall, subcontractor pricing has effectively plateaued, with conditions neither tightening nor easing meaningfully, signaling a stabilization phase following prior months of more pronounced inflationary pressure.

"The increase in alloy steel pipe is being driven by sharp increases in prices for key raw materials including nickel, chrome and molybdenum in recent months, as well as a reduction in alloy pipe imports to the United States after the increase in Section 232 tariffs to 50% in June of last year," said Amanda Elington, Director at S&P Global Market Intelligence. "Raw material costs are expected to peak in the third quarter before declining through year-end and 2027, with alloy pipe prices moving lower in tandem. Imports from top sources including Mexico, Europe and Japan will remain constrained by 50% Section 232 tariffs."

The six-month headline expectation for future construction costs dropped to 62.4 in June from 79.2 in May. The six-month pricing expectation for materials and equipment softened in June, with the diffusion index declining 13.2 points to 66.9. Despite the broad retreat, most components remain above the 50.0 threshold, indicating that respondents still broadly anticipate price increases over the next six months. Turbines led all components with a reading of 83.3, followed by ANSI Pumps and Compressors and Transformers, both at 78.6. Notably, the only component where a greater portion of respondents expect higher prices is fabricated structural steel. The general outlook suggests higher prices in the next six months.

The six-month subcontractor pricing expectation index declined 25.2 points to 51.9 in June, settling just above the neutral 50.0 threshold. The near-universal reading of 50.0 across all regions and disciplines suggests respondents broadly anticipate flat subcontractor pricing over the next six months, potentially reflecting recent improvements in U.S. labor market conditions easing supply pressures. Notably, specialty trades supporting data center construction continue to face a distinctly tighter outlook, with demand for these workers remaining elevated and driving a divergent pricing trajectory compared to the broader market.

Respondents highlight a notably active critical minerals market as a key driver of construction activity heading into the second half of 2026. Growing uncertainty stemming from the ongoing Middle East conflict has prompted suppliers to shorten bid validities on equipment and bulk material packages, complicating project planning. Bidders have held prices firm through June and July, though respondents broadly expect upward pressure to persist driven by inflation and elevated energy costs. On the supply side, lead times for pipe, steel, and electrical items are extending, signaling procurement challenges.

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