Construction Costs Continued Climbing in February with More Expected in First Half of 2021
Materials and labor prices rose for the fourth consecutive month as the engineering and construction industry rebounds from the COVID-19 induced recession.
Engineering and construction costs increased for the fourth consecutive month in February, according to IHS Markit and the Procurement Executives Group (PEG). Survey participants in February’s headline IHS Markit PEG Engineering and Construction Cost Index witnessed price escalations for all categories under the materials and equipment sub-index for the second month in a row, after having reported increases in January for the first time since July 2018.
According to February's Index:
- Copper prices continued to increase, recording the eighth consecutive month of rising prices.
- The carbon steel pipe price index rose to a figure of 78.6 in February, up from 70 in January.
- Fabricated structural steel prices rose from a score of 70 to 71.4.
- Transformer prices recorded their third straight price increase, returning to a level above 60 at 66.7.
In addition, ocean freight from both Europe and Asia to the U.S. saw a sixth straight month of price increases. “Containerized spot rates along Asia to the United States routes remain elevated compared to last year and are not likely to return to pre-pandemic levels in 2021,” said Tal Dickstein, senior economist at IHS Markit. He attributes this to a shortage in container availability and port congestion that delayed ships and container movement, adding a premium on available space and impacting the overall costs of material transport.
Overall, February’s Index came in at 68.2. The materials and equipment portion of the index rose 5.1 points to 74.8, notching the third straight month of reported price increases. The subcontractor labor index came in at 52.7.
The sub-index for current subcontractor labor costs is only slightly higher than January’s index figure of 51.1. According to survey responses, labor costs rose only in the Southern region of the U.S., remaining flat throughout most of the country and throughout all regions of Canada.
The six-month headline expectations for future construction costs index registered 76.6 in February, indicating survey respondents expect to see continued price increases through the first half of 2021.
Both sub-indexes reflected this sentiment, with the materials and equipment sub-index totaling 78.0 for the month. Most survey responders did not report any shortages for materials and equipment but noted shipping constraints.
The six-month expectations index for subcontractor labor recorded a reading of 73.4 in February, with labor costs still expected to increase in all regions of the U.S. and Canada.
Written By: Becky Schultz from IHS Market