Construction cost indicator shows mixed signals for contractors

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Engineering and construction costs increased in August, according to the Engineering and Construction Cost Indicator from PEG and S&P Global Market Intelligence[2]. The headline Engineering and Construction Cost Indicator, a leading indicator measuring wage and material inflation for the engineering, procurement, and construction sector, declined 4.6 points to 60.7 in August. The sub-indicator for materials and equipment costs fell 3.8 points to 59.8 while the sub-indicator for subcontractor labor costs moved down to 62.9 in August from 69.3 in July.

The materials and equipment indicator saw a decrease in August but continues to show rising prices. Only six of the 12 components decreased compared to July, but decreases were, on average, larger than increases.

The primary drivers of the net decline were 17-point and 31.9-point declines for transformers and ocean freight from Europe to the United States. On the other hand, only copper-based wire and cable saw a double-digit increase, up 11.9-points to 83.3 in August. Shell and tube heat exchangers and pumps and compressors each declined to neutral readings of 50 in August. Meanwhile, all three steel categories, carbon pipe, alloy pipe, and fabricated structural steel, remained in contractionary territory in August with readings between 38.9 and 44.4.

John Anton, economics director at S&P Global Market Intelligence, says, “Despite recent relative weakness, North American steel may have the firmest steel pricing globally, supported more by production restraint and tariffs than by booming demand. Construction steel consumption and prices crashed in mainland China, dragging down all of Asia and, to some extent, Europe. U.S. mills are doing an excellent job of matching steel production to construction demand. Rebar, structurals, and wire rod prices are trending downward from very high levels, with a bottom likely by the end of the year. Sheet steel spiked in November 2022 to February 2023, and again in November 2023 to January 2024. We expect another spike this year, so buy in September, October at the latest.”

The sub-indicator for current subcontractor labor costs also saw a decline, down 6.4 points compared to July. This came as a result of declines in the Northeast, Midwest and South regions of the U.S., more than offsetting increases in the U.S. West and Western Canada regions.