Engineering and Construction Cost Indicator reports headline costs increased again in December, marking more than four consecutive years of increases

Engineering and construction costs increased again in December, 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 saw a minor decline to 54.4 this month. The sub-indicator for materials and equipment costs stepped up 1.5 points to 56.3 while the sub-indicator for subcontractor labor costs fell back to 50.0 in December from 56.3 in November.

The materials and equipment indicator saw a modest increase in December. Six of the 12 components increased compared to last month, while five decreased; alloy steel pipe was unchanged. Shell and tube heat exchangers decreased 7.1-points this month to 42.9, joining fabricated structural steel, carbon steel pipe and alloy steel pipe in contractionary territory. Gas and steam turbines and pumps and compressors each saw moderate declines in December to settle at neutral readings of 50.0. Transformers and electrical equipment saw the largest declines this month, 16.1- and 18.8-points respectively, but prices still remain tight with readings around 70.0. Meanwhile, the ocean freight categories saw the largest increases this month with routes from Asia to the U.S. up 16.7-points to 77.8, and routes from Europe to the U.S. up 14.3-points to 64.3.

“Rising ocean freight rates to the United States are reflecting the start of both the pre-Lunar New Year and potential ILA strike frontloading,” said Keyla Martinez, Economist, S&P Global Market Intelligence. “Asia and European-origin shippers successfully navigated the work stoppages related to the October ILA strike by frontloading their cargo well ahead of the strike, a tactic likely to be replicated in the upcoming weeks. Given that fundamentals do not justify rising rates, the early advancement of shipments will assist in easing ocean pricing by the second quarter of 2025.”

The sub-indicator for current subcontractor labor costs saw a reversal from last month, settling back to the neutral reading of 50.0 seen in October. December marks the third consecutive reading below 60.0, indicating that the tightness that has existed in subcontractor labor costs in recent years has softened significantly. All regions and labor categories registered neutral readings of 50.0 this month.

The six-month headline expectations for future construction costs indicator saw a decrease to 61.8 in December. The six-month expectations indicator for materials and equipment came in at 66.9, 2.3-points lower than last month’s figure. The largest decreases were for carbon steel pipe, ready-mix concrete and gas and steam turbines, which all fell between 8.3- and 12.5-points. Four of the 12 categories were unchanged and only three categories saw increases. Every product group remains above 50.0, indicating prices are expected to rise in the next six months.

The six-month expectations indicator for sub-contractor labor saw a modest decline of 8.3-points this month, joining current labor expectations at a neutral reading of 50.0. All categories registered values of 50.0 this month, and the declines were primarily focused in the instrumentation and electrical labor category which had shown more tightness in November.

Respondents continue to report some shortages for electrical equipment like transformers, circuit breakers and switchgear as well as electricians.