Engineering and construction costs increased in April, 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, saw an increase to 77.7 in April. The sub-indicator for materials and equipment costs increased 8.3 points to 75.8 points, while the sub-indicator for subcontractor labor costs jumped to 82.4 in April from 68.5 in March.
The materials and equipment indicator also increased in April. Ten of the 12 components increased compared to March, and all ten had readings of at least 75 in April. Two categories declined: ocean freight from Asia and Europe to the U.S., which decreased 25 points and 7.6 points, respectively, leaving both in contractionary territory. Of the ten categories that increased, five increased at least 15 points. Gas and steam turbines and transformers increased 15 points to 90 points in April. Electrical equipment jumped 21.7 points, and shell and tube heat exchangers saw the largest increase in April of 30 points. Fabricated structural steel saw the second largest increase of 27.3 points, but this resulted in a reading of 100 for April, indicating all respondents saw higher prices this month.
Thomas McCartin, principal economist at S&P Global Market Intelligence, says, “It’s no surprise to see sweeping reports of higher fabricated structural steel pricing. The [United States’] policy change in March that removed country exemptions and product exclusions under Section 232 tariffs on steel, aluminum, and select fabricated metals has led to a quick jump in [United States’] pricing, in some cases in excess of the 25 percent tariff rate.”
The sub-indicator for current subcontractor labor costs also saw a significant increase, climbing to 82.4 after a reading of 68.5 in March. Increases were widespread, and all regions and employment categories are at or above 75. Most readings saw increases of between 10 points and 20 points in April, but some saw as high as 30.4 points. The only exceptions were instrumentation and electrical contractors in the West, which had a 4.2-point decline to 83.3 points, the same reading as other subcontractors in the region. Mechanical subcontractors in Western Canada were unchanged.
The six-month headline expectations for future construction costs indicator decreased to 74.1 points in April. The six-month expectations indicator for materials and equipment was 76.9 points, which was 9.7 points lower than March. All 12 categories declined, though most remain highly elevated, with only three categories below 80 in April. Most decreases were between 5 points and 15 points, with fabricated structural steel having the only larger decline of 20.5 points. Ocean freight from Asia to the U.S. saw a 9.1-point decrease to a neutral reading of 50 in April, the only category not in expansionary territory.
The six-month expectations indicator for subcontractor labor also decreased 8.5 points in April. While the reading of 67.6 points indicates a moderately tight pricing environment, this is far lower than readings since the start of the year. Movements were varied, with 10 subcontractor categories seeing declines, four increasing, and four categories unchanged. The largest movements were a series of decreases, 25 points to 50 points, registered in the West, bringing all employment categories to neutral readings of 50.
Respondents reported expected shortages for welders, electrical equipment components like switchgear, and circuit breakers. Additional market comments suggested tariffs have had a large impact on pricing in April, and data centers are still the best market for construction.