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Construction Costs Rise to Highest Point in Past Year

Construction costs rose to the highest point in the last year in September, according to IHS Markit and the Procurement Executives Group (PEG). The headline IHS Markit PEG Engineering and Construction Cost Index registered 58.4, up from 54.0 in August. Both material/equipment and labor sub-indexes registered rising prices.

The materials/equipment price index was 59.3 in September, moving up from the August figure of 54.2. Price increases were widespread; with the exception of exchangers, which saw prices remain flat, every category in the materials index showed higher prices. Ocean freight, both from Asia to the U.S. and Europe to the U.S. were among the largest movers compared to last month.

“Global demand for marine transportation is improving, both in the bulk segment and in the container segment,” said Paul Robinson, associate director, Pricing and Purchasing at IHS Markit. “On the bulk side, the primary driver is food products, on the container side, intraregional trade is driving some of the gain, especially in East Asia. Buyers outside of the United States should avoid locking in rates until prices pull back in 2018.”

The current subcontractor labor index rose in September, reaching 56.4. Regionally, costs rose in all four regions of the United States. In Canada, the results were mixed; labor costs fell once again in Eastern Canada but they rose in Western Canada.

The six-month headline expectations index recorded another month of increasing prices, moving down from 68.2 in August to 67.0 this month. The materials/equipment index stayed positive at 67.8. Similar to current material/equipment prices, expectations for future price increases were widespread, with index figures for every component coming in strongly above neutral. Price expectations for sub-contractor labor came in at 65.2 in September. Labor costs are expected to rise in all regions of the United States and Canada.

In the survey comments, participants noted some uncertainty in market environment heading into 2018.