Engineering and construction costs increase in February, supported by rising materials prices

Engineering and construction costs increased again in February, 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 modest increase to 60.5 this month. The sub-indicator for materials and equipment costs stepped up 3.7-points to 64.0 while the sub-indicator for subcontractor labor costs edged down to 52.2 in February from 53.4 in January.

The materials and equipment indicator saw a modest increase in February. Nine of the 12 components increased compared to last month. The increases were widespread and most of the categories saw fairly sizable increases. Seven categories saw double-digit increases compared to last month including two steel categories, and all of the machinery and equipment and electrical machinery categories. Pumps and compressors saw the largest increase (up 17.5-points) followed closely by gas and steam turbines (up 16.1-points). Fabricated structural steel saw a relatively minor 5.6-point increase and settled at a neutral reading, joining ready-mix concrete which was unchanged at 50.0 this month. Meanwhile, both of the ocean freight categories saw very large declines of 26.7-points and 27.8-points respectively for routes from Asia to the U.S. and Europe to the U.S., each settling in contractionary territory with readings of 33.3 in February. Following it’s 15.6-point jump this month, carbon steel pipe registered a reading of 60.0, the first reading above 50.0 since April 2023.

“Pipe prices bottomed in late 2024 but are set for large near term increases due to higher steel input costs and tariffs on imports,” said Thomas McCartin, Principal Economist, S&P Global Market Intelligence. “The U.S. market is heavily supplied by imports and the U.S. administration’s move to remove exclusions and exemptions from Section 232 tariffs will mean all steel imports into the U.S. soon face a 25% tariff.”

The sub-indicator for current subcontractor labor costs saw a minor decrease, falling to 52.2 after a reading of 53.4 last month. Despite this decrease, most categories remain unchanged at readings of 50.0. The only category that remains above neutral is instrumentation and electrical contractors in the U.S. South region, which saw a modest 5.4-point increase to a reading of 62.5 this month.

The six-month headline expectations for future construction costs indicator saw another strong increase to 85.6 in February. The six-month expectations indicator for materials and equipment came in at 83.1, 3.1-points higher than last month’s figure. Almost all categories saw increases, with ocean freight from Asia and Europe to the U.S. registering the only declines. Only one of 12 categories saw increases greater than 10.0-points this month, unlike the seven categories that saw large increases in January, but the widespread increases show expectations for price increases in all categories over the next six months. All 12 categories had readings between 66.7 and 90.0 this month, with most over 80.0.

The six-month expectations indicator for sub-contractor labor also saw a significant increase of 15.4-points this month after an even larger 26.3-point increase in January, continuing the return to strongly inflationary territory with a reading of 91.7. All regions and categories saw increases this month with many registering readings of 100.0, indicating all respondents expect higher prices.

Respondents report expected shortages for craft workers as mega projects and new LNG projects come online later in 2025. Additional market comments suggested the construction markets are not moving as quickly as anticipated.