WASHINGTON, D.C. (May 26, 2021) – Engineering and construction costs increased for the seventh consecutive month in May, with respondents reporting widespread price increases across all index components, according to IHS Markit (NYSE: INFO) and the Procurement Executives Group (PEG). The headline IHS Markit PEG Engineering and Construction Cost Index registered a reading of 78.8 in May, 6.3 index points higher compared to April. The materials and equipment sub-index recorded its sixth consecutive monthly increase, rising 4.6 points to reach 83.1. The subcontractor labor index recorded 68.6, up 10.3 index points from last month.
Within the materials and equipment sub-index, all categories showed price increases. Index levels fell for two categories, ocean freight costs and fabricated structural steel, remained in expansion territory but fell compared to April, indicating pricing pressures for those categories were less widespread in May. All other categories experienced increases in index totals from April to May. Copper prices continue to steadily increase, recording the eleventh straight month of price increases with an index figure of 87.5, the highest reading for this sub-index since January. Costs of ocean freight from both Europe and Asia to the United States continued increasing for the ninth month in a row, reaching an index figure of 83.3.
“The China containerized freight index has been sitting at a level greater than 1,000 since the fourth quarter of 2020, having last breached the four-digit mark more than five years ago,” said Tal Dickstein, senior economist at IHS Markit. “The continued high volumes along this route indicate that demand remains strong. At the same time, we are entering a seasonally high demand period as well, meaning tightness will continue over the summer and prices will remain elevated.”
The sub-index for current subcontractor labor costs rose for the fourth straight month, recording an index level of 68.6 in May, a significant increase from April’s index figure of 58.3. According to survey responses, labor costs rose for sub-indices representing each region of the United States and Canada.
The six-month headline expectations for future construction costs index totaled 70.4 in May, showing respondents’ expectations of continued price increases into the fourth quarter. The six-month expectations index for the materials and equipment component equaled 69.3 this month; the six-month expectations index for sub-contractor labor recorded a reading of 73.0, as labor costs are expected to continue increasing in all regions of the United States and Canada.
Most survey respondents did not report any shortages for materials and equipment currently, other than the previously mentioned restrictions due to shipping.
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