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Increasing Materials and Labor Prices Drive Engineering and Construction Costs Higher in August

WASHINGTON, D.C. – August 27, 2022 – Engineering and construction costs increased again in August, 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 slightly to an index level of 68.6 this month from 68.9 in July; August’s reading is still well above the breakeven 50 mark, indicating rising prices. The subcontractor labor index rose 3.3 index points in August to 85.2 from 81.8 in July, while the sub-index for materials and equipment costs fell 1.9 index points to 61.5.

The equipment and material index rose again for the 21st consecutive month. Among the 12 indicators, prices for two fell and three remained flat while the rest increased. The sub-indexes for metals prices saw varying adjustments this month with carbon steel pipe and alloy steel pipe both falling to 45.5, while pumps and compressors rose 21.4 index points to 75.0. Carbon steel pipe and alloy steel pipe are the most notable among the group, as they represent a decrease in their prices. This turnaround is also the first time that these subcomponent prices have decreased after 21 months of consistent growth.

“Prices for some pipe products have eased as lower raw material costs are passed through, however, there is wide variation by product,” said Amanda Eglinton, Economics Director, Pricing and Purchasing, S&P Global Market Intelligence. “Prices for standard, mechanical and HSS have started to decline, though energy pipe and tube and specialty and high nickel alloy grades remain in short supply with prices continuing to move higher through the third quarter.”

The sub-index for current subcontractor labor costs came in at 85.2 in August, up from July’s 81.8. 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 also rose to 62.5 in August. The six-month expectations index for materials and equipment came in at 53.3, 0.6 index points higher than last month’s figure, still hovering above the 50-point mark indicating price increases. Additionally, ocean freight – Asia to U.S. and ocean freight – Europe to U.S. saw stabilization in their respective six-month expectations. The six-month expectations index for sub-contractor labor increased 1.8 index points this month to 83.9. Although labor costs will continue to rise, cost increases will become less widespread by year’s end in all regions of the United States and Canada.

Respondents continued to report material shortages in August, particularly for electrical steel, electric components, and cement.

 

 

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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