WASHINGTON, D.C. – July 26, 2023 – Engineering and construction costs increased again in July, 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, fell to 56.8 this month from 62.7 in June indicating that price increases were slightly less widespread than last month. The sub-indicator for materials and equipment costs fell to 52.6 this month from 64.2 in June; price pressures have remained strong since the December sub-50 reading. The sub-indicator for subcontractor labor costs increased modestly to 66.7 this month, up from 59.3 in June.

The equipment and materials indicator continued to show rising prices, though only 6 of the 12 components posted increases in July. The categories for carbon steel pipe and alloy steel pipe shifted to contractionary territory this month with values of 38.9 and 42.9 respectively. Additionally, fabricated structural steel and pumps and compressors shifted from growth to neutral. Meanwhile, soft global trade activity continues to push ocean freight prices on Europe to U.S. and Asia to U.S. routes lower. The diffusion index readings for transformers and electrical equipment components saw significant declines down to 61.1 in July from 90.0 last month. Ready-mix concrete continues to see strong price growth, with price increases expected to continue as all respondents noted the expectation of higher prices in 6 months.

“Ready-mix concrete prices are facing increasing demand pressures as spending increases due to government infrastructure projects. While energy prices have moderated over the past year, minimizing one of the primary price drivers of the last 18 months, demand for materials like cement and concrete is expected to increase as projects funded by the Infrastructure Investment and Jobs Act get started,” said Luke Lillehaugen, Senior Economist, S&P Global Market Intelligence. “This increase in demand is not yet being met by an equivalent increase in domestic production, resulting in a larger reliance on imports. If the supply and demand imbalance continues into the primary buying season of early 2024, expect prices to see significant increases. Additionally, a global supply shortage for sand—a key material in the concrete manufacturing process—is also pushing prices up.”

The sub-indicator for current subcontractor labor costs increased this month, registering 66.7 in July after a 59.3 reading in June. This represents a pause in the trend of consistently weaker readings reported since March of this year but remains lower than any reading between November 2021 and February 2023. While labor markets are not as tight as they were in 2022, a reading of 66.7 indicates that costs continue to rise. According to survey responses, labor costs continued to rise in every region of the United States but were mostly flat in Canada.

The six-month headline expectations for future construction costs indicator decreased by 9.3 points to a reading of 60.8 in July. The six-month expectations indicator for materials and equipment came in at 58.3, 4.7 points lower than last month’s figure. The outlooks for carbon steel pipe, alloy steel pipe, shell and tube heat exchangers and gas/steam turbines all shifted to contractionary territory this month. Fabricated structural steel and pumps and compressors stayed flat at neutral this month. Only three categories saw increases, with both ocean freight categories increasing modestly to 65.0, and ready-mix concrete increasing to 100.

The six-month expectations indicator for sub-contractor labor decreased significantly compared to last month, down 20.0 points to a reading of 66.7, the lowest reading since August 2021. Declines occurred in every category and region, though costs are still expected to increase everywhere except Eastern Canada where the values are neutral. The tightest region is the U.S. South where values range between 71.4 and 78.6.

Respondents continued to report material shortages in July, particularly for transformers and electrical equipment, but more comments were focused on shortages of labor and the availability of specific craft workers. Expectations are that prices for some commodities will rise again in six months when demand picks up after the winter season.

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