WASHINGTON, D.C. (June 23, 2021) – Engineering and construction costs rose for the eighth consecutive month in June, according to IHS Markit (NYSE: INFO) and the Procurement Executives Group (PEG). The headline IHS Markit PEG Engineering and Construction Cost Index registered 78.2 for the month, a slight decline of 0.6 index points from May’s reading, though still firmly in expansion territory. For seven consecutive months, the materials and equipment sub-index has signaled escalating prices; the sub-index totaled 85.0 in June, a 1.9 index-point increase from last month. The subcontractor labor index recorded 62.3, 6.3 index points lower than the prior month, indicating less consensus for labor cost increases among respondents compared to May.
For the sixth straight month, survey responses suggested increases for all categories under the materials and equipment sub-index, though index-levels fell from last month in several categories. Copper prices have continued to increase for the past year, reaching an index figure of 87.5 in June, the same figure as May and the highest reading for this sub-index since January of this year. Costs of ocean freight from both Europe and Asia to the United States increased for the tenth month in a row, with both categories reaching a new index peak of 95.5. Simultaneously, the sub-indices for electrical equipment and transformers remained high in June, at 95.0 and 87.5, respectively as demand for semiconductors outpaces available supply.
“Following the lifting of lock-down measures in various countries, semiconductor manufacturers did not have the opportunity to match the pace of production with the rapid recovery in demand in the automotive and industrial electronics sectors,” said David Smith, electrical machinery pricing analyst, IHS Markit. “With most of the semiconductor supply concentrated in Japan, South Korea, Taiwan and mainland China, manufacturers have given obvious preference to local demand first, especially as freight costs remain so high globally. Procuring these inputs in the Western Hemisphere remains difficult, given delivery times and transportation costs remain elevated and will remain so for the foreseeable future.”
The sub-index for current subcontractor labor costs came in at 62.3 in June, a slight fall in number terms from May’s index figure of 68.6. According to survey responses, labor costs rose for sub-indices representing each region of the United States and in Canada, for the fifth straight month.
The six-month headline expectations for future construction costs index totaled 66.5 in June, showing respondents still expect prices to increase through the remainder of 2021. The six-month expectations index for the materials and equipment component equaled 67.0 this month. The six-month expectations index for sub-contractor labor recorded a reading of 65.2, as labor costs are expected to continue increasing in all regions of the United States and Canada.
Most survey respondents did not report any shortages for materials and equipment currently, other than the previously mentioned restrictions due to shipping.
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