S&P Global PEG Engineering and Construction Cost Index (ECCI)

The S&P Global PEG Engineering and Construction Cost Index (ECCI) is a diffusion index. It is based on data independently obtained and compiled by S&P Global from procurement executives in leading engineering, procurement, and construction firms. The headline index tracks trends in the heavy construction industry, identifies market turning points in project costs, and acts as a leading indicator for wage and material inflation specific to this industry.

A diffusion index measures the degree to which a sample population observes change by showing how widely this change is acknowledged or dispersed within a group.
In the S&P Global PEG ECCI, respondents are asked whether prices (either actual paid transactions or company-informed transactions) this month for individual materials, equipment, and regional subcontractor rates, were higher, lower or the same as last month.
The index is calculated as follows:
ECCI = (ρ1 * 1.0) + (ρ2 * .5) + (ρ3 * 0)
Where ρ1 represents the proportion of respondents reporting higher prices, ρ2 is the proportion of respondents reporting no change in prices and ρ3 is the proportion of respondents reporting lower prices.
By definition, an index number greater than 50 implies higher prices, less than 50 implies lower prices, and equal to 50 implies no change in prices. If all respondents in a population sample reported higher prices in a given month, the ECCI would be 100, if all respondents reported falling prices, the ECCI would register 0. As an example, if 40% of a sample reported higher prices, 35% reported lower prices, and 25% reported no change in prices, the ECCI would be:
ECCI = (.40 * 100) + (.25 * 50) + (.35 * 0) = 52.5%

A considerable amount of academic research has been devoted to the question of whether magnitude can be derived from the relative position of a diffusion index. That is, if the index were to read 52 in one month and 57 in the next, does this simply say that price increases are occurring more broadly, or more broadly and at a faster rate? For some diffusion indexes, such as the Institute of Supply Management's Purchasing Manager Index (PMI)1, research has shown that the farther the index is from the neutral position (an index level of 50), the higher the rate of change. Hence, an index of 60% indicates a faster rate of increase than an index of 55%.

However, this has not been proven with the S&P Global/PEG ECCI. As such, when interpreting the monthly results, one must be careful in drawing conclusions. Only direction and depth can be inferred from the relative position of the S&P Global/PEG ECCI, whereby a reading above 50 indicates rising prices and a reading below 50 indicates falling prices. For example, a reading of 60% relative to the previous month's reading of 55% indicates only that a greater proportion of the population sample is observing higher prices. It does not imply that prices are increasing at a 5% faster rate. Similarly, it would be incorrect to conclude that a monthly reading of 60% relative to a previous month's 30% report shows that current prices are twice as high.

Data is independently obtained and compiled by S&P Global from procurement executives representing leading Engineering, Procurement, and Construction firms. Surveys are sent out to members of the Procurement Executives Group (PEG) on the first Monday of each month and are open for a two week window. A full list of surveyed member companies can be accessed at http://www.peg-eci.org/. Individual responses are considered raw data, are not revised, and are not seasonally adjusted. Respondents are asked whether prices (either actual paid transactions or company-informed transactions) this month for individual materials, equipment, and regional subcontractor rates were higher, lower or the same as last month. The breakdown of subcategories can be found in the chart below. Respondents are then asked for their six month pricing expectations across these same subcategories.