Engineering and construction costs increased in January, according to the Engineering and Construction Cost Indicator 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 saw a modest increase to 58.2 this month. The sub-indicator for materials and equipment costs stepped up 4.0 points to 60.3 while the sub-indicator for subcontractor labor costs rose to 53.4 in January from 50.0 in December.
The materials and equipment indicator saw a modest increase in January. Nine of the 12 components increased compared to last month. While the increases were widespread, most of the categories saw fairly small increases. Fabricated structural steel and carbon steel pipe each saw relatively minor increases and remain in contractionary territory. Meanwhile, alloy steel pipe increased by 6.3-points to a neutral reading of 50.0. Joining alloy steel pipe, ready-mix concrete saw a 10.0-point decline to a reading of 50.0. Both of the ocean freight categories, from Asia and Europe to the U.S. saw declines, settling at readings of 60.0 and 61.1 respectively. The primary drivers of the upward movement in the overall materials and equipment category were the machinery and equipment categories. Gas and steam turbines (up 21.4-points), shell and tube heat exchangers (up 19.6-points) and pumps and compressors (up 12.5-points) were the biggest upward movers of the month.
"The combination of policy uncertainty related to the new U.S. administration, coupled with seasonal pricing pressure to open the year, leave most machinery and equipment categories vulnerable to opportunistic price increases in 2025,” said Maxwell Clarke, Principal Economist, S&P Global Market Intelligence. “The degree to which gains stick and continue to materialize in coming months comes down to demand, which appears supportive at present.”
The sub-indicator for current subcontractor labor costs saw a minor increase, rising to 53.4 after a neutral reading last month. Despite this increase, most categories remain unchanged at readings of 50.0. The only four categories that saw an uptick in January were the readings for all U.S. regions for instrumentation and electrical contractors; increases were between 7.1- and 16.7-points this month across the four geographic regions.
The six-month headline expectations for future construction costs indicator saw a significant jump to 78.8 in January. The six-month expectations indicator for materials and equipment came in at 79.9, 13.0-points higher than last month’s figure. Almost all categories saw increases, with transformers registering the only decline. Seven of 12 categories saw increases greater than 10.0-points with the largest increases materializing for copper-based wire and cable (up 26.4-points), pumps and compressors (up 23.2-points) and ocean freight from Europe to the U.S. (up 21.5-points).
The six-month expectations indicator for sub-contractor labor also saw a significant increase of 26.3-points this month, returning to strongly inflationary territory with a reading of 76.3. Following a month where all regions and categories registered neutral readings of 50.0, January saw every category increase between 16.7- and 33.3-points.
Respondents continue to report some shortages for electrical equipment like transformers, circuit breakers, motors and switchgear. Additional market comments suggested concern about tariffs and noted rapid development in the data center market.
