Engineering and Construction Cost Indicator flat in November as rising labor costs were offset by less widespread materials costs

Engineering and construction costs increased again in November, 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 was unchanged at 55.3 this month. The sub-indicator for materials and equipment costs stepped down 2.9 points to 54.8 while the sub-indicator for subcontractor labor costs jumped to 56.3 in November from 50.0 in October.

The materials and equipment indicator saw a modest decrease in November. Only two of the 12 components increased compared to last month, while nine decreased; ready-mix concrete was unchanged. Ocean freight from Asia to the U.S. saw a fairly strong 11.1-point increase to 61.1 this month, and transformers saw an even larger 20.8-point jump to 87.5. The largest declines were for carbon steel pipe and alloy steel pipe, down 17.9 and 13.4-points respectively. These two categories joined fabricated structural steel in contractionary territory with readings between 25.0 and 43.8. Shell and tube heat exchangers and ocean freight from Europe to the U.S. each saw moderate declines and registered neutral readings of 50.0 this month.

The sub-indicator for current subcontractor labor costs saw a modest uptick from neutral last month. Increases were scattered across geographies, but were almost exclusively focused in the instrumentation and electrical labor category—all regions except Western Canada saw an increase for this type of labor. Despite the increase, this is still the second lowest reading for current labor costs since early 2021.

"Pricing expectations for subcontractors has slowed. The initial construction activity boost from packages like the Infrastructure Investment and Jobs Act and the Inflation Reduction Act has slowed, limiting demand for workers in the construction industry,” said Emily Crowley, Economics Director, S&P Global Market Intelligence. “Indicators of labor shortages in the construction industry have moved below pre-pandemic levels. Improving worker availability combined with slowing inflation will limit pricing pressure. One upside risk to watch is in skilled trades, which continue to struggle with tighter market conditions due to ageing demographics."

The six-month headline expectations for future construction costs indicator saw an increase to 65.9 in November. The six-month expectations indicator for materials and equipment came in at 69.1, 5.5-points higher than last month’s figure. The largest increases were in the steel categories: carbon steel pipe increased 32.1-points, alloy steel pipe was up 18.8-points and fabricated structural steel increased 12.5-points. Outside of these big swings, most of the movement came from a few large declines for ready-mix concrete, down 15.0-points and shell and tube heat exchangers, down 10.4-points.

The six-month expectations indicator for sub-contractor labor saw a modest decline down 4.8-points this month to a reading of 58.3. The declines were visible in most regions for the civil and mechanical labor categories but were partially offset by some increases for expectations surrounding instrumentation and electrical subcontractors.

Respondents continue to report some shortages for electrical equipment and laborers.