After several months of declines, steel and ocean freight prices reach a bottom, removing downward pressure on the ECCI
WASHINGTON, D.C. – March 29, 2023 – Engineering and construction costs increased again in March, 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, rose to a level of 62.7 this month from 60.3 in February, indicating price increases in March were slightly more widespread than in February. The sub-indicator for materials and equipment costs jumped from 55.0 last month to 64.2 in March, indicating a strengthening trend since the sub-50 reading from December. The subcontractor labor indicator fell to 59.3, removing 13.3 points in March, but still indicating widespread increases in labor costs. No respondents indicated labor costs fell in March, but a larger share this month indicated labor costs were unchanged.
The equipment and materials price indicator increased more than 9 points to 64.2 with nine of the 12 components posting increases. Carbon steel pipe increased to exactly 50 this month, indicating price declines have paused. Weak demand has undercut steel pricing, with the well-supplied market shifting leverage to buyers over the last eight months. Meanwhile, soft global trade activity continues to weigh on ocean freight prices, though the indicator for ocean freight from Asia to the U.S. increased to 50 in March, indicating that the downward price trend may be beginning to pause. Transformers and electrical equipment components remain high, with supply chain issues and long backlogs maintaining a tight market.
“The outlook for steel pipe and tube prices is mixed. Energy grades have not passed through the full declines in sheet and plate, so there is less support for increases as sheet rebounds,” said John Anton, Economics Director S&P Global Market Intelligence. “However, hollow structural sections (HSS) have declined in line with feedstock, so as sheet rebounds there is pressure on HSS to rise as well.”
The sub-indicator for current subcontractor labor costs came in at 59.3 in March, down from February’s 72.6. According to survey responses, labor costs continued to rise in most regions of the United States, though increases have cooled off in the U.S. Northeast and Canada. March’s reading was the first time the indicator dropped below 70.0 since October 2021.
The six-month headline expectations for future construction costs indicator increased by 3.7 points to a reading of 70.1 in March. The six-month expectations indicator for materials and equipment came in at 63, 8.9 points higher than last month’s figure. The outlook for steel remains weak, with two of the three steel categories sitting at 50.0 and one at 55.0. The six-month expectations indicator for sub-contractor labor registered 86.7, continuing to indicate a majority of survey respondents expect higher labor costs in six months; the subcontractor indicator for every region is above 80.
Respondents continued to report material shortages in March, particularly for transformers, electrical equipment, and labor.
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