Construction input cost analysis
Material costs recalibrate while labour and machinery and equipment costs continue to grow
Materials
Materials costs continued to soften in Q4 2023, with prices of fabricated metal products and construction materials decreasing on the year by 1.1 percent and 2.6 percent respectively. Iron and steel pipes and tubes, rolled and drawn steel, and communications and electric wire and cable have all experienced significant reductions compared to the previous year.
Recent monthly data suggests there could be some price increases to come as energy costs rise and geopolitical disruptions stretch supply chains. However, the overall cost environment for materials in 2024 is set to be largely benign.
Source: Statistics Canada
Cost movements vary by product and many items are still exposed to considerable cost pressures. Some of the sharpest increases over the past year were seen in clay and ceramic products, aluminum production and insulation. While supply chains are recalibrating, some components are experiencing long lead times. Forward purchases, local sourcing and creating approved lists of alternative suppliers can all help mitigate the risks associated with procuring construction materials and components.
Labour
Labour costs are also starting to ease, with average weekly earnings (including overtime) in construction increasing by 2.7 percent on the year in Q4 2023. One contributing factor is that the stretch and strain previously placed on the labour force is relaxing.
As labour demand reduces, the requirement for capacity and capability decreases. Even though construction vacancies remain higher than pre-pandemic levels, exacerbating skills shortages within the industry, they have fallen consistently for six quarters in a row.
Source: Statistics Canada
Construction’s unemployment rate is growing as well. It recorded a value of 5.6 percent in Q4 2023, up 1.0 percentage points from its Q4 2022 value of 4.6 percent. In theory, as the labour market becomes less tight, with more tradespeople needing jobs, it should become easier to attract and retain construction talent.
However, construction’s unemployment rate is lower than the national average of 5.8 percent, suggesting that the industry is fighting to attract recruits from a shallow talent pool. Legacy constraints such as low industry attractiveness and limited diversity may also put a floor under the construction employment rate.
Machinery and equipment
Construction machinery and equipment costs are now increasing at a much slower pace, with easing workloads cooling demand and reducing supply bottlenecks. Total domestic and imported construction machinery and equipment costs softened 4.8 percent on the quarter in Q4 2023.
Alongside this, Canada’s freight cost index fell by 9.7 percent in Q4 2023 compared to Q4 2022, meaning the cost of transporting goods and components to site have become cheaper. Diesel prices also fell, dropping by 24.8 percent on the year in Q4 2023. Together these factors kept transportation costs down and reduced the cost of operating machinery and equipment.
Source: Statistics Canada
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