Cost rise slows in US

31 October 2018

IHS Markit survey

Growth in US construction costs appears to be slowing, according to the latest IHS Markit PEG Engineering and Construction Cost Index.

Conducted by IHS Markit and the Procurement Executives Group, the October survey’s index figure was 59.8, down 2.4 points on the previous month. Despite the weaker pace of price inflation, survey results show that prices have been rising consistently for the last two years.

Looking specifically at materials and equipment prices, they rose at a slightly slower pace in October than they did in September, with the index dropping from 62.9 to 61.3.

Price increases for materials and equipment were stronger in 11 of the 12 sub-components in October. None of the categories showed falling prices; only heat exchangers had flat pricing.

The largest sub-component price gain was seen in copper-based wire and cable, which rebounded from the previous month’s reading of 40.9 to reach 51.9. Alloy steel pipe, on the other hand, experienced the largest drop from September but remained well above flat pricing with an index figure of 65.

Amanda Eglinton, principal economist for pricing and purchasing at IHS Markit, said, “We expect steel pipe prices to decline moderately over the remainder of 2018 and into 2019. The elevated steel pipe prices in the last two years were driven by higher steel input costs; with falling steel costs, steel pipe prices will also move down. However, upside pricing risks remain, with quotas on Korean and Brazilian imports as well as higher demand from the energy sector.”

With regard to current subcontractor labour, overall prices increased at a slower pace this month, with the index figure falling 4.2 points to 56.2.

However, despite this retreat, October marked the 15th consecutive month of increasing prices. Labour costs continued to rise in western and southern US but were flat in the northeast and midwest. In Canada, the eastern part of the country registered higher labour costs, while in the west they remained level.

The six-month headline expectations for construction costs index suggested that prices are expected to increase for the 26th consecutive month.

The index fell 7 points in October, after posting a record-breaking increase in September. Within that, the materials and equipment index fell 4.9 points to 74, and price expectations for sub-contractor labour dropped 12 points, reversing some of September’s large increase. Nevertheless, labour costs are expected to rise in all regions of the US and Canada.

Survey comments indicated a tight labour market for all skilled trade workers, as well as some tightness with regard to imported steel.

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