Slowing inflation, more workers could ease construction cost pressures

by Christopher Brinckerhoff | December 12, 2024 6:00 am

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Engineering and construction costs increased again in November, according to the Engineering and Construction Cost Indicator[2] 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 in November. The sub-indicator for materials and equipment costs decreased 2.9 points to 54.8, while the sub-indicator for subcontractor labor costs jumped to 56.3 in November from 50 in October.

The materials and equipment indicator saw a modest decrease in November. Only two of the 12 components increased compared to October, while nine decreased; ready-mix concrete was unchanged. Ocean freight from Asia to the U.S. saw a fairly substantial 11.1-point increase to 61.1 in November, and transformers saw an even more significant 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 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 in November.

The sub-indicator for current subcontractor labor costs saw a modest uptick from neutral in October. 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 rise, 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 aging demographics.”

The six-month headline expectations for future construction costs indicator increased 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 by 32.1 points, alloy steel pipe was up 18.8 points, and fabricated structural steel increased by 12.5 points. Outside of these big swings, most of the movement came from a few significant declines for ready-mix concrete, down 15 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 58.3. The declines were visible in most regions for the civil and mechanical labor categories but were partially offset by some increases in expectations surrounding instrumentation and electrical subcontractors.

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

Source URL: https://www.metalarchitecture.com/news/industry-news/inflation-workers/

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