The S&P Global PEG Engineering and Construction Cost Index (ECCI) is a leading indicator for wage and material inflation for the Engineering, Procurement and Construction sector.
The S&P Global PEG Engineering and Construction Cost Index
The S&P Global PEG Engineering and Construction Cost Index (ECCI) is based upon data independently obtained and compiled by S&P Global from procurement executives representing leading Engineering, Procurement, and Construction firms. See full list of member companies.
The ECCI tracks industry specific trends and variations, identifying market turning points for key projects, and is intended to act as a leading indicator for wage and material inflation specific to this construction and engineering industry.
Surveys are sent out to members of the Procurement Executive Group (PEG) on the first Monday of each month and are open for a two week window. Results are released the last Friday of each month. See full list of member companies.
Each survey response is weighted equally for every USD 2 billion in spending in North America. 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 the prior month. The breakdown of subcategories can be found in Chart 1.
Respondents are then asked for their six month pricing expectations among these same subcategories. The results are compiled into diffusion indexes, whereby a reading greater than 50 represents upward pricing strength and a reading below 50 represents downward pricing strength. Individual responses are considered raw data, are not revised and are not seasonally adjusted. The headline index is formed by creating a weighted composite between materials/equipment (70%) and subcontractor rates (30%).
The S&P Global PEG Engineering and Construction Cost Index (ECCI) is a diffusion index based on data independently obtained and compiled by S&P Global from procurement executives from leading engineering, procurement, and construction firms. The headline index tracks industry specific trends and variations, identifying market turning points for key projects, and is intended to act as a leading indicator for wage and material inflation specific to this industry. Each survey response is weighted equally for every $2 billion in spending in North America. 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 the prior month. Respondents are then asked for their 6 month pricing expectations among these same subcategories. The results are compiled into diffusion indexes, whereby a reading greater than 50 represents upward pricing strength and a reading below 50 represents downward pricing strength.
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S&P Global (NYSE: IHS) is a global information company with world-class experts in the pivotal areas shaping today's business landscape: energy, economics, geopolitical risk, sustainability and supply chain management. We employ more than 8,000 people in more than 31 countries around the world. Businesses and governments around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of S&P Global to make high-impact decisions and develop strategies with speed and confidence. S&P Global has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005.
About PEG (www.peg-eci.org) The Procurement Executives Group (PEG) provides a forum to identify and address procurement related issues which will improve the effectiveness of the engineering and construction industry. Established in 1994, the Procurement Executives Group has been recognized as an industry authority on procurement, materials management, and subcontracting topics. PEG is actively involved in supporting research efforts related to these topics.
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S&P Global (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape today's business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of S&P Global to make high-impact decisions and develop strategies with speed and confidence. S&P Global has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, S&P Global is committed to sustainable, profitable growth and employs approximately 8,000 people in 31 countries around the world.
The Procurement Executives Group (PEG) provides a forum to identify and address procurement related issues which will improve the effectiveness of the engineering and construction industry. Established in 1994, the Procurement Executives Group has been recognized as an industry authority on procurement, materials management, and subcontracting topics. PEG is actively involved in supporting research efforts related to these topics.
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.
Each survey response is weighted equally for every USD 2 billion in spending in North America. The headline index is formed by creating a weighted composite between materials/equipment (70%) and subcontractor rates (30%).
No, the ECCI is designed to track costs for North American capital projects. While the labor subcomponent strictly captures costs in the North American region, the materials/equipment subcomponent reflects the change in prices observed by buyers, and it may reflect either actual paid transactions or company informed transactions with domestic or foreign producers for their goods for use in the North American market.
The engineering, procurement and construction (EPC) companies surveyed have a diverse portfolio of projects across the energy, transportation, communication, mining, oil and gas and government service industries. As specified above, the index only reflects projects in the North America marketplace. As such, the ECCI is a price indicator for the major material, equipment and regional subcontractor rates that are inputs to large scale North American infrastructure projects.
