Engineering and construction costs rose for the fourteenth consecutive month in December, according to IHS Markit and the Procurement Executive Group (PEG).
The IHS Markit PEG Engineering and Construction Cost Index for December 2021 fell from 67.4 in October to 75.2 in December. The material and equipment costs sub-index led the increase, rising 7.8 index points to 73.6. The subcontractor labor index rose again by 8.0 index points to 78.9 in December.
Shipping rates increased for the sixteenth consecutive month in December; the sub-index of sea freight costs from Europe and Asia to the United States rose again from 77.8 to 85.0 last month. The copper-based wire and cable price sub-index fell to 62.5 from 55.0 in November. The electrical equipment sub-index fell from a sub-index of 59.1 in November to 86.4 in December.
“Amid the limited availability of certain inputs, their high prices and logistical constraints, manufacturers of electrical machinery are now struggling to negotiate supply contracts with steel mills for 2022, especially for electric steel.” said John Anton, director of pricing and purchasing at IHS. Markit, in a prepared statement. “Producers were told they would get an allocation, mostly rationing, for electric steel for the whole of next year, with most expecting to get only 80-90% of purchasing needs. . The impact of the electric steel shortage could potentially be as damaging to the global economy in 2022 and 2023 as the semiconductor shortage is this year. If electrical machinery companies don’t get the electrical steel they need, buyers will face much longer delivery times and higher prices.
The current subcontractor labor cost sub-index stood at 78.9 in December, an increase from the November index of 70.9. According to survey responses, labor costs continued to increase in all regions of the United States and Canada.
Overall six-month expectations for the Future Construction Cost Index stood at 61.0 in December, with respondents still expecting prices to continue rising until mid-2022, but perhaps be at a less intense pace. The six-month expectation index for materials and equipment stood at 54.1, 14.2 index points lower than in November. The six-month expectation index for subcontractor labor posted a reading of 77.2, with respondents expecting labor costs to rise sharply in all regions the United States and Canada; that sub-index total is 17.2 index points lower than last month’s reading of 94.4.
Survey respondents reported fewer material shortages this month, but still mentioned the limited availability of input metals and tubing for equipment. Proposal activity remains high, with the index reaching 75.0 in December. This reading is lower than the November total of 81.8.
Source: IHS Markit