Economy

IHS/PEG Index Shows Material and Labor Costs Escalating

July 25, 2018

Steel prices held the top spot on the IHS Markit PEG Engineering and Construction Cost Index for July. The survey of procurement executives showed construction costs have increased for 21 consecutive months, with July’s reading up 1.4 points from June to register 68.0.

Prices for materials and equipment grew in eight of the 12 categories covered. Steel led the list followed by concrete, transformers and pumps, and compressors.

“Steel prices in the U.S. are at or near peak levels. What little relief is on the way will come later this year,” said John Anton, director, pricing and purchasing, IHS Markit. “Pipe and tube prices have not peaked, but will climb through the rest of the year. If you buy from Brazil, Argentina or South Korea, you may need to find additional suppliers; supply shortages are ongoing in rebar, angles, pipe and tube.”

The index for subcontractor labor also jumped in July, climbing 3.7 points to 64.4 and rising for its 12th straight month. Labor costs increased across the U.S., intensifying most in the Northeast.

Looking six months ahead, executives expect costs to continue their upward swing. The future headline cost index was at 78.0, the highest in the six-year history of the survey. Material/equipment costs and labor costs are expected to increase in all regions of the United States and Canada.

Survey respondents commented that they expect a shortage of truck drivers, welders and quality inspectors in the next six months. Rising prices and uncertainty regarding U.S. trade policy also continued to concern procurement executives.

SMU NOTE: John Anton, director of steel analytics at IHS Markit, will present “Steel Industry Forecasts: 2019 and Beyond” with Bank of America Merrill Lynch analyst Timna Tanners at the SMU Steel Summit in Atlanta on Aug. 28.