Current construction costs rose for the 31st consecutive month in August, according to IHS and the Procurement Executives Group (PEG). The current IHS PEG Engineering and Construction Cost Index (ECCI) registered 53.0 percent in August, softer than the July reading, but still in positive territory.
The materials/equipment component of the ECCI eased to 53.5 percent, down 4 percent from the July reading. In August, six of the 12 components of the materials and equipment categories showed higher prices. However, of the remaining components, five registered neutral prices relative to July. Fabricated steel strengthened, while alloy steel pipe and ready-mix concrete have remained elevated since May.
According to survey respondents, higher concrete prices appear to be mostly focused in the Gulf Coast region due to a number of factors, including delivery issues and labor constraints. Although nationally, the cement and concrete markets appear well supplied, pockets of tightness are developing, said Charles McCarren, pricing and purchasing analyst for IHS.
“Unfortunately, the cement and ready-mix industries continue to struggle with fallout from the Great Recession and the collapse in construction activity in 2008 and 2009,” explained McCarren. “In most markets, these industries are keeping up with demand, which remains subpar. However, in the Gulf Coast especially, many producers have a tough time keeping pace with the swelling tide in demand.
“Utilization rates in Texas and other Gulf states remain among the highest in the nation,” McCarren continued. “Although we expect a supply response to eventually relieve some of the pressure, it would not be unreasonable to expect (cement and ready-mix concrete) prices there to continue escalating in the single digits over the next year, or almost twice the national average.”
The current subcontractor labor market index dropped to 51.8 percent in August, down from 52.3 percent in July. While still rising, this is the lowest reading for the current labor index since January 2012. The majority of regions registered neutral prices relative to July. Nevertheless, respondents again expressed concern over tightness in skilled labor markets in the Gulf Coast region, specifically referencing the tight market for qualified welders.
The six-month headline expectations index sagged to 67.6 percent in August, down from the second-highest reading on record in July. This reflected softer readings in both the materials/equipment and subcontractor labor subcomponents of the index. The materials/equipment portion came in at 68.9 percent, with pockets of strength focused in alloy pipe and ready-mix concrete. Expectations for subcontracted labor registered 64.5 percent, down from 74.8 percent in July. The regional detail conveyed strong expectations in the U.S. South region, driven by expectations for projects in the hydrocarbon sector to accelerate over the second half of this year and into 2015.