Construction costs rose again in March, according to the most recent index reports from HIS Markit and the Procurement Executives Group. The current IHS Markit PEG Engineering and Construction Index has registered 50.2, just barely above the “neutral” mark for the first time since November 2016. The materials and equipment index was 49.4 – indicating falling prices for the first time in 40 months – while the sub-contractor labor index reading was 52.0, indicating ongoing price increases.
Respondents to the IHS Markit survey reported falling prices for five of the 12 components in the materials and equipment sub-index: ocean freight (Asia to U.S. and Europe to U.S.), fabricated structural steel, carbon steel pipe, copper-based wire and cable. Prices for alloy steel pipe and exchangers remained the same, while prices for the remaining categories rose. Index figures in all categories fell relative to February, with the sharpest drops in ocean freight.
IHS Markit attributes these falling prices to the impact of COVID-19 on the global market, and respondents in the survey comments have connected lower demand conditions to the impact of the virus.
“Ocean freight has taken a notable hit with the onset of coronavirus,” says Deni Koenhemsi, senior economist with IHS Markit. “As China tried to contain COVID-19, industrial production contracted substantially, and the transportation of goods nearly came to a halt. In the first two months of 2020, U.S. imports from Asia dropped 6.2% year-over-year, and imports from China were down 15.5 percent. Although the number of blank sailings is beginning to taper off – meaning we will see higher imports from China to United States – the rapid spread of the virus in Europe and North America could cause the downward trend to continue.”
Six-month headline expectations call for increasing construction costs for the 43rd consecutive month, with a projected index of 58.2, down from February’s 67.6 reading. The six-month materials and equipment expectations index was 57.6, down from 68.0 in February, and expectations for sub-contractor labor fell to 59.7.
