Engineering and Construction Costs Hold in Expansion Territory in October

Engineering and construction costs continued to increase, but at a slower pace, in October, 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 of wage and material inflation in engineering, procurement, and construction, decreased to 68.6 in October from 75.7 in September. The materials and equipment cost sub-indicator registered 76.6, while the subcontractor labor cost sub-indicator decreased to 50.

The materials and equipment diffusion index registered 76.6, remaining firmly in expansion territory and little changed from 76.5 in September. Ten of the 12 components remained above the neutral mark of 50, indicating that price increases remain broad-based. Electrical equipment (switchgear/MCCs) and ocean freight — both Asia-to-U.S. and Europe-to-U.S. — posted maximum readings of 100. Fabricated structural steel, carbon steel pipe, copper-based wire and cable, gas/steam turbines, and transformers all registered 83.3. Sustained strength across electrical and power-generation categories suggests that data center buildout and grid expansion continue to tighten these supply chains, while freight readings point to firming logistics costs. Alloy steel pipe and ANSI pumps and compressors also indicated price increases, with readings of 66.7 each. Redi-mix concrete was neutral at 50.0, and shell and tube heat exchangers were the only category below neutral. With trade flows through the Strait of Hormuz still constrained, elevated logistics, energy, and feedstock costs should keep prices elevated.

The subcontractor pricing sub-indicator registered 50.0, reaching the neutral threshold and signaling stable pricing across engineering, procurement, and construction (EPC) trades. Reporting this month centered on the U.S. South, where Civil, Mechanical, and I&E each registered 50.0, with respondents indicating that prices held steady rather than declined. Civil was unchanged from September, while Mechanical and I&E moderated from the prior month's higher readings. This suggests that subcontractor rates are stabilizing at current elevated levels rather than declining after several months of sustained increases. Persistent construction labor demand — particularly from data center, power, and industrial projects — should continue to support subcontractor pricing into 2027.

"While easing aluminum prices offer selective cost relief, copper continues to trade sideways near record highs, exacerbated by tariff-induced inventory lockups, and remains a key driver of electrical equipment cost pressures”, said Jason Kaplan, Director and Nonferrous Metals Analyst at S&P Global Market Intelligence. “With copper availability constrained and risks of mine disruptions, these nonferrous dynamics will maintain a firm floor under electrical machinery prices through 2026.”

The six-month materials and equipment cost expectations index registered 68.2, comfortably above the neutral threshold of 50.0, signaling that respondents continue to anticipate upward price pressure over the next six months. Electrical categories again led: transformers and electrical equipment (switchgear/MCCs) each registered 100.0, with every respondent expecting higher prices — consistent with sustained demand from data center buildout and grid expansion. ANSI pumps and compressors and gas/steam turbines followed at 83.3, both up from the prior month, while redi-mix concrete registered 75.0. Alloy steel pipe and copper-based wire and cable each posted 66.7. Fabricated structural steel, carbon steel pipe, and both ocean freight lanes registered a neutral 50.0, indicating expectations of stable rather than declining prices. Shell and tube heat exchangers were the only category below neutral. Overall, respondents continue to expect higher materials and equipment costs, although expectations vary by category.

The six-month subcontractor pricing expectations index registered 50.0, the neutral threshold separating expansion from contraction, indicating that respondents expect subcontractor rates to hold steady over the next six months. Survey coverage centered on the U.S. South, where Civil, Mechanical, and I&E each registered 50.0. Civil and Mechanical were unchanged from the prior month, while I&E moderated from a higher reading. No category indicated expectations of lower prices, suggesting that respondents anticipate rates will plateau at current elevated levels rather than decline.

Respondents highlighted continued volatility in non-ferrous metal prices, particularly copper prices, which is translating into higher costs for electrical equipment and bulk materials — consistent with this month's elevated diffusion index readings across electrical categories.