Construction material prices building up construction costs

Sources: IHS Markit Ltd., London; Procurement Executives Group

Construction costs rose again in July, according to IHS Markit and the Procurement Executives Group. The headline IHS Markit PEG Engineering and Construction Cost Index registered 51.3, down from 51.5 in June. Both material/equipment and labor had few categories with falling prices. While the material/equipment sub-index rose, the labor sub-index showed some weakness.

The materials/equipment price index came in at 52.4 in July, slightly higher than the June figure of 51.3. Price increases were uneven. Seven of the 12 categories tracked in the materials index showed higher prices, three categories registered flat pricing, and two had falling prices. Despite anxiety about the pending Section 232 trade case, fabricated structural steel prices fell this month. The ocean freight from Europe to U.S. also showed weakness. Prices remained flat for ocean freight from Asia to U.S. carbon steel pipe and ready-mix concrete.

“Ready-mix concrete prices rose during the first half of the year, although not as strongly as 2016,” says Deni Koenhemsi, senior economist with Pricing and Purchasing at IHS Markit. “Producers of ready-mix concrete and cement choose to push price increases in the cement category. Although cement is an important input cost for concrete, price increases are not completely filtering down to ready-mix.”

The current subcontractor labor index fell in July, with the index coming in at 48.7. Regionally, costs rose in the U.S. Midwest, while the U.S. Northeast, South and West showed flat labor market conditions. The overall index was pulled down by Canada once again, where labor costs fell in both Eastern and Western regions.

The six-month headline expectations index recorded another month of increasing prices, moving from 63.5 in June to 68.3 in July. The materials/equipment index stayed positive, at 68.7. Eleven consecutive months of rising prices affirm widespread expectations of future higher costs. Unlike current material/equipment prices, expectations for future price increases were more widespread, with index figures for every component coming in strongly above neutral. Price expectations for subcontractor labor came in at 67.4 in July, the highest in the last two and a half years. Labor costs are expected to rise in all regions of the United States and Canada.

In survey comments, participants noted mixed proposal activity despite a strong proposal activity index figure.