Construction input cost analysis
Material costs soften while labour and machinery and equipment costs grow at a slower pace
Materials
In November 2023, Canada’s Industrial Product Price Index (IPPI) for all items was 5.6 percent below the peak seen in May 2022, meaning many manufactured goods have become less expensive. Fabricated metal products and construction materials decreased by 3.9 percent since their peak in June 2022, and by 0.7 and 2.7 percent on the month and year respectively in November 2023.
When looking at construction materials and components in more detail there is an overall downward trend. Yet unlike major products, where more indices are moving down than up, there is greater polarization within construction.
There are certain items that continue to have low availability, demand is resilient and supply chains in these areas have not been repaired fully. Glass and glass products, concrete bricks and blocks and mineral wool remain high, increasing by 12.7, 9.5, 7.4 percent on the year in November 2023.
All within the cement, glass and other non-metallic major product index have been affected by large volumes of infrastructure work and resilience in non-residential workloads. This is creating price premiums on glass facades and internal glazing and partitions, concrete structures and external works and insulation of buildings.
Source: Statistics Canada
The availability of many other construction products is improving, supply chains recalibrating and costs alleviating. Sanitaryware, architectural metal products and communications and electrical wire and cable have decreased by more than 10 percent on the year over the same period. Many wood products have softened, too, as residential workloads weaken, and the easing of structural steel pricing should help high rise building costs become more affordable.
Labour
Labour costs, on the other hand, are rising and reaching record highs. The rate of growth in construction pay, however, is starting to fall. Average weekly earnings (including overtime) in construction increased by 3.8 percent on the year as of Q3 2023.
Source: Statistics Canada
Certain occupations are in increasingly short supply. Non-residential building, heavy and civil engineering and utility system construction have seen average weekly earnings garner some of the highest compensation across all sub-sectors. Each recorded CA$1,714.4, CA$1,878.0 and CA$2,085.1 respectively as of September 2023, aligned to solid infrastructure demand, and all were above the construction aggregate rate of CA$1,500.3.
Conversely, residential building construction, building finishes contractors and foundation, structure, and building exterior contractors are some of the lowest, comparatively. Those trades recorded CA$1,285.7, CA$1,301.1 and CA$1,332.5 respectively as of September 2023. With more buildings being completed and fewer starting due to affordability concerns, wages are lower and increasing more slowly.
Still, even the lowest earning trades average weekly earnings are above the national industrial aggregate of CA$1,218.1. Despite this, it isn’t enough to attract sufficient workers into the sector, where employment can be volatile, and the construction vacancy rate of 4.8 percent is much higher than the industry average of 3.7 percent.
Encouragingly, construction employment growth has been tracking sector GVA up until recently, responding to demand. However, employment continues to grow while activity levels reduce, which may create some slack in the labour market. This should eventually offer some respite in wage growth and availability, yet labour costs are still expected to notably contribute towards input cost pressures.
Machinery and equipment
Much like labour costs, machinery and equipment costs continue to rise. Again, the pace of growth is abating as activity levels drop. Total domestic and imported costs have softened to 6.9 percent on the quarter as of Q3 2023, which is the lowest rate of change in close to two years.
Reductions in diesel prices, which fell by 23.7 percent on the year in November 2023, are also helping control cost of operating machinery and equipment. Fuel cost savings have also eased the price premiums of getting materials and components to site, although the future of diesel costs is not guaranteed. There has been a rally of oil prices in recent months as geopolitical concerns and production cuts by the Organization of Petroleum Exporting Countries are affecting supply lines, which could create volatility in fuel costs.
Source: Statistics Canada
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