New York – July 24, 2024 – 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 increased 2.9 points to 65.3 this month. The sub-indicator for materials and equipment costs rose 4.6 points to 63.6 while the sub-indicator for subcontractor labor costs edged down to 69.3 in July from 70.5 in June.

The materials and equipment indicator saw a solid increase in July and continues to show rising prices. Seven of the 12 components increased compared to last month, with the largest increases coming for carbon steel pipe, alloy steel pipe and copper-based wire and cable. Despite increases of 14.4- and 11.7-points respectively, carbon steel pipe and alloy steel pipe remain in contractionary territory with readings of 41.7. They were joined by fabricated structural steel which saw a very minor 0.6-point decline to 35.7. Copper-based wire and cable saw a 12.3-point increase resulting in a very strong reading of 71.4 this month. Increases for shell and tube heat exchangers, pumps and compressors and gas and steam turbines were moderate this month and all resulted in readings between 57.1 and 58.3. Electrical equipment and transformers each saw minor declines this month but remain very elevated with readings of 85.7. The two ocean freight categories saw a divergence this month, with routes from Asia to the U.S. falling 20.1-points to 68.8, while routes from Europe to the U.S. saw an increase to 87.5 from 81.3 last month.

“Ocean freight to the U.S. east coast has seen a recent push forward in seasonal demand in an attempt to avoid potential negative impacts as a result of ongoing union contract negotiations in the region,” said Keyla Martinez, Economist, S&P Global Market Intelligence. “Combined with an era of global reduced shipping capacity, this shift in timing has driven freight rates for shipping from Europe to the U.S. higher. Rates should begin to reverse by the end of the third quarter as the earlier peak season fades.”

The sub-indicator for current subcontractor labor costs saw very little movement on net this month with just a 1.2-point decrease compared to last month. This came as a result of fairly significant increases in the U.S. South region and more modest increases in the Midwest being offset by solid declines in the U.S. West and both regions in Canada. Readings for mechanical and instrumentation and electrical workers in the U.S. South each saw double-digit increases to readings of 90.0 this month. Subcontractor labor in the civil industry saw a smaller 8.9-point increase to 70.0. Meanwhile, almost all employment categories in the U.S. West and Canada saw double digit decreases and settled at neutral readings of 50.0 in July.

The six-month headline expectations for future construction costs indicator increased moderately to 73.7 in July. The six-month expectations indicator for materials and equipment came in at 74.1, 11.7 points higher than last month’s figure, more than fully offsetting the 9.6-point decline in the same category last month. All 12 categories saw price expectations increase this month. The largest increases were seen for carbon steel pipe, up 28.6-points, gas and steam turbines, up 22.2-points, copper-based wire and cable, up 17.5-points and alloy steel pipe, up 16.9-points. Expectations for both ocean freight categories are only slightly above neutral with readings of 56.3. All other categories show strong expectations for higher prices with values between 66.7 and 85.7.

The six-month expectations indicator for sub-contractor labor saw a modest decline this month, down to 72.8 after two months at 79.2. Similar to current expectations for subcontractor labor, the U.S. South and U.S. Midwest regions saw moderately strong increases, while the U.S. West and Canada registered declines. Driving the more significant decline compared to current expectations was additional modest declines in the U.S. Northeast region.

Respondents reported some shortages this month for electrical equipment, and labor, especially as many workers in certain industries continue to age. They also noted significant delays in deliveries for transformers, as well as general concerns for the potential impacts of hurricane season on oil and resin markets.

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