Construction Costs Continue Climb

Construction costs are on the rise in the near term and not so distant future. According to the latest IHS Markit PEG Engineering and Construction Cost Index, September was the 23rd straight month of cost increases. The index jumped more than three points to 62.1. The materials/equipment and subcontractor labor sub-indexes also showed cost growth compared to August.

Among the materials most impacted by the U.S.-China tariffs is copper. "Copper is being pummeled by the broadening trade war between the U.S. and China and the threat of weaker Chinese growth," said John Mothersole, director of pricing and purchasing with IHS Markit. "Inventory, however, has been falling since April and regional warehouse premiums have been rising globally, both signs that fundamentally, the market is tightening. The potential clash between fundamentals and sentiment could make the fourth quarter particularly interesting."

Overall, the current materials/equipment index increased in September, the 22nd consecutive month of upward pricing (score over 50). The expected pricing in six months also shot up more than 11 points for the 25th month in a row of pricing growth.

Meanwhile, current labor costs saw its 14th consecutive month of increased pricing, up 5.5 points last month. Subcontractor labor pricing skyrocketed in the future index, a jump of more than 21 points, marking two straight years of upward pricing. The overall expected pricing index reached its highest level on record (since 2012), a score of nearly 80.

-Michael Miller, managing editor

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