Labor, Material Costs Rise in December
January 3, 2017

IHS Markit and the Procurement Executives Group reported construction costs rose for the second straight month in December, as the Construction Cost Index registered 53.3, up from 50.7 in November, continuing the recovery after a 22-month slump in prices. Strength was evident in both labor and material markets, according to the report.

"Notwithstanding the stronger readings of the past two months in the materials/equipment index, upstream commodity prices look exposed at the moment and poised for a correction,” says John Mothersole, director of research at IHS Pricing and Purchasing. “While we do see leverage becoming more evenly balanced between buyers and suppliers in 2017, we expect upstream commodity markets to reset in the months immediately ahead with prices pulling back at least temporarily to better reflect underlying fundamentals."

The current subcontractor labor index came in at 53.1 in December, slightly lower than the 54.1 November reading, but still presenting positive momentum. In the Northeast, Midwest and Southern United States, labor costs rose; in the West, costs remained the same as last month. Even areas affected by the downturn in energy markets are feeling the effects of a tightening labor market. 

The six-month headline expectations index recorded another month of increasing prices, with the index moving from 65.1 in November to a strong 68.9 in December, IHS reports. The materials/equipment index rose from 66.4 to 73.3, affirming widespread expectations of higher future prices. Subcontractor labor price expectations came in at 58.7 in December, slightly lower than the November figure of 61.9.