Engineering and Construction Cost Index Completes Third Consecutive Year of Growth, IHS Markit Says

Wednesday, October 30, 2019 10:00 am EDT

Dateline:

New York
"Ocean shipping rates are increasing ahead of the new IMO sulfur standards taking effect on January 1, 2020, despite flagging trade volumes"

U.S. construction costs increased once again in October, according to IHS Markit (NYSE: INFO) and the Procurement Executives Group (PEG). The current headline IHS Markit PEG Engineering and Construction Cost Index registered 58.5 in October, marking the 36th consecutive month that construction costs have increased. Both the materials and equipment and sub-contractor labor indexes indicated continued price increases, with readings of 57.3 and 61.6, respectively. 

Survey respondents reported increasing prices for 9 out of the 12 components within the materials and equipment sub-index. Within materials, the diffusion index for copper-based wire and cable and carbon steel pipe fell. Prices for fabricated structural steel were flat. Equipment categories such as transformers, turbines, pumps and exchangers posted increasing prices, although index figures backed off compared to last month. Ocean freight prices to the United States from both Asia and Europe increased, posting the eighth consecutive month of increases.

“Ocean shipping rates are increasing ahead of the new IMO sulfur standards taking effect on January 1, 2020, despite flagging trade volumes,” said Kayla Bruun, senior economist at IHS Markit. “Capacity is tightening as the major shipping alliances reduce the number of sailings to better match demand, and this trend will continue as vessels are taken offline temporarily to prepare for the fuel switch. Rates will rise higher in 2020 as ships begin using more expensive low-sulfur fuel, the cost of which will be at least partially passed on to consumers.” 

The sub-index for current subcontractor labor costs reported rising labor costs in all regions of the United States as well as Eastern and Western Canada. The diffusion index figure rose once again relative to last month. 

The six-month headline expectations for future construction costs index reflected increasing prices for the 38th consecutive month, with the index registering 67.7, a slight dip from September’s 70.7. The six-month materials and equipment expectations index came in at 65.2 this month, down from 73.5 last month. Prices for fabricated structural steel, carbon steel pipe and heat exchangers are expected to be flat, while all the remaining categories are showing price increases. Expectations for sub-contractor labor ticked up to 73.1 in October with labor costs expected to rise in all regions of the U.S. and Western Canada. 

In the survey comments, respondents noted shortages for welders as well as truck drivers.

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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IHS Markit PEG Engineering and Construction Cost Index October 2019