Construction costs in North America rose for the 22nd consecutive month in November as labor costs continued to increase, amid growing industry concern over the tight availability of skilled workers.
The Engineering and Construction Cost Index (ECCI) registered 53.2 percent in November, up from 52.6 percent in October, according to IHS Inc. (NYSE: IHS) and the Procurement Executives Group (PEG). The ECCI indicates that construction costs in North America have been on the rise for nearly two years since January 2012.
The attached figure presents the monthly results of the ECCI. A number higher than 50 indicates a monthly increase in prices paid, while a reading lower than 50 shows a price decline.
The index divides construction costs into two major categories: materials/equipment and subcontractor labor. With the materials/equipment portion of the index hovering near 50 since April, it was the labor segment that drove the increase for the month.
The current subcontractor labor index climbed to 58.5 percent, up from 56.4 percent last month, with the strongest gains in November concentrated in Western Canada as well as in the southern and western regions of the United States.
Shale shock
The shale gas boom in the United States is playing a major role in driving increased spending on construction and rising costs for associated labor in North America.
“Labor concerns have been reported in the U.S. Gulf Coast, where demand from new downstream energy projects is expected to increase,” said Laura Hodges, director of the pricing and purchasing service at IHS. “Some in the industry are even suggesting shortages of skilled laborers such as welders and pipefitters in 2014 because of increasing investment in such projects.”
For several years, materials costs were the major factor driving up expenses for North American construction firms, as China’s economic boom ate up the available global supply. However, as China’s growth has slowed, the focus has shifted from materials to labor.
North American construction companies now say their main concern is the continued increase in labor costs. With U.S. spending on construction on the rise and skilled workers aging, the availability of skilled laborers is likely to become tighter.
While costs for these skilled laborers are on the increase, the wage inflation is not likely to climb as high as it did in 2007, when a strong U.S. economy spurred double-digit annual pay increases for these skilled areas. This is largely because the strength of the U.S. economy is not as uniform as it was 2007 and employers are investing in training and mentoring programs to be prepared for this next wave of activity.
The material world
Looking at the material/equipment segment of the ECCI, November recorded the seventh consecutive month of falling prices for carbon steel pipe and a fourth month of declining freight rates between Asia and the United States. Copper-based wire and cable and fabricated structural steel also joined the ranks of falling prices in November and moved below the 50-percent threshold.
About the ECCI
The IHS/PEG Engineering and Construction Cost Index (ECCI) is a diffusion index based on data independently obtained and compiled by IHS from the procurement executives of leading engineering, procurement, and construction firms. The headline index tracks industry-specific trends and variations, identifying market turning points for key projects, and is intended to act as a leading indicator for wage and material inflation specific to this industry.
Each survey response is weighted equally for every $2 billion in spending in North America. Respondents are asked whether prices—either actual paid transactions or company-informed transactions—during the current month for individual materials, equipment, and regional subcontractor rates, were higher, lower or the same as the prior month.
Respondents are then asked for their six-month pricing expectations among these same subcategories. The results are compiled into diffusion indexes, in which a reading greater than 50 represents upward pricing strength and a reading below 50 represents downward pricing strength.
Related Stories
Airports | Aug 22, 2024
Portland opens $2 billion mass timber expansion and renovation to its international airport
This month, the Portland International Airport (PDX) main terminal expansion opened to passengers. Designed by ZGF for the Port of Portland, the 1 million-sf project doubles the capacity of PDX and enables the airport to welcome 35 million passengers per year by 2045.
Smart Buildings | Jul 25, 2024
A Swiss startup devises an intelligent photovoltaic façade that tracks and moves with the sun
Zurich Soft Robotics says Solskin can reduce building energy consumption by up to 80% while producing up to 40% more electricity than comparable façade systems.
Great Solutions | Jul 23, 2024
41 Great Solutions for architects, engineers, and contractors
AI ChatBots, ambient computing, floating MRIs, low-carbon cement, sunshine on demand, next-generation top-down construction. These and 35 other innovations make up our 2024 Great Solutions Report, which highlights fresh ideas and innovations from leading architecture, engineering, and construction firms.
Airports | Jun 3, 2024
SOM unveils ‘branching’ structural design for new Satellite Concourse 1 at O’Hare Airport
The Chicago Department of Aviation has revealed the design for Satellite Concourse 1 at O’Hare International Airport, one of the nation’s business airports. Designed by Skidmore, Owings & Merrill (SOM), with Ross Barney Architects, Juan Gabriel Moreno Architects (JGMA), and Arup, the concourse will be the first new building in the Terminal Area Program, the largest concourse area expansion and revitalization in the airport’s almost seven-decade history.
Products and Materials | May 31, 2024
Top building products for May 2024
BD+C Editors break down May's top 15 building products, from Durat and CaraGreen's Durat Plus to Zurn Siphonic Roof Drains.
Biophilic Design | May 6, 2024
The benefits of biophilic design in the built environment
Biophilic design in the built environment supports the health and wellbeing of individuals, as they spend most of their time indoors.
Architects | May 2, 2024
Emerging considerations in inclusive design
Design elements that consider a diverse population of users make lives better. When it comes to wayfinding, some factors will remain consistent—including accessibility and legibility.
Airports | Apr 18, 2024
The next destination: Passive design airports
Today, we can design airports that are climate resilient, durable, long-lasting, and healthy for occupants—we can design airports using Passive House standards.
Airports | Feb 13, 2024
New airport terminal by KPF aims to slash curb-to-gate walking time for passengers
The new Terminal A at Zayed International Airport in the United Arab Emirates features an efficient X-shape design with an average curb-to-gate walking time of just 12 minutes. The airport terminal was designed by Kohn Pedersen Fox (KPF), with Arup and Naco as engineering leads.
Urban Planning | Feb 5, 2024
Lessons learned from 70 years of building cities
As Sasaki looks back on 70 years of practice, we’re also looking to the future of cities. While we can’t predict what will be, we do know the needs of cities are as diverse as their scale, climate, economy, governance, and culture.