Labor costs continue to increase amid growing industry
concern over the tight availability of skilled workers.
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.
Source: BDCNetwork.com
No comments:
Post a Comment