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Broad-based Gains in Materials, Equipment and Labor Costs Drive Engineering and Construction Costs Higher in July

WASHINGTON, D.C. – July 27, 2022 – Engineering and construction costs increased again in July, according to IHS Markit, now a part of S&P Global, and The Procurement Executives Group (PEG). The headline IHS Markit PEG Engineering and Construction Cost Index, a leading indicator measuring wage and material inflation for the engineering, procurement and construction sector, fell to an index level of 68.9 this month from 76.7 in June; July’s reading is still well above the breakeven 50 mark, indicating rising prices. The subcontractor labor index fell 7.3 index points in July to 81.8 from 89.1 in June, while the sub-index for materials and equipment costs fell 8 index points to 63.4.

The equipment and material index rose for the 21st month in a row. Among the 12 indicators, prices for one fell and another one stayed flat. The sub-indexes for metals prices saw varying adjustments this month with the carbon steel pipe and alloy steel pipe rising to 64.3 and 66.7, respectively, while fabricated structural steel and copper-based wire and cable fell to 46.4 and 60.0, respectively. Fabricated structural steel is the most notable figure among the four, as it represents a decrease in price. This turnaround is also the first time that any subcomponent price has decreased after 20 months across all categories.

“Fabricated structural steel prices fell earlier than expected”, said John Anton, Director, S&P Global Market Intelligence. “Sheet and plate steel prices only peaked in April and have recorded only two months of falling prices; this is an unusually short lag period for input cost to pass through. It confirms that at least partially, price declines are driven by falling demand.” 

The sub-index for current subcontractor labor costs came in at 81.8 in July, a modest ease in growth from June’s 89.1. According to survey responses, labor costs continued to rise in all regions of the United States and Canada.

The six-month headline expectations for future construction costs index fell to 61.5 in July. The six-month expectations index for materials and equipment came in at 52.7, 17.6 index points lower than last month’s figure, just hovering above the 50-point mark indicating price increases. Only five of the 12 indices showed price increases, two of them were flat and five of them indicated falling prices. The six-month expectations index for sub-contractor labor increased 2.9 index points this month to 82.1. Labor costs will continue to rise, with cost increases widespread in all regions of the United States and Canada.

Respondents continued to report material shortages in July, particularly for electric components, and cables.

To learn more about the IHS Markit PEG Engineering and Construction Cost Index or to obtain the latest published insight, please click here.


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