Construction input cost analysis
Tariff headwinds raise short-term input cost pressures
Materials
In Q4 2024, construction material costs in Canada experienced a modest decline, decreasing by 0.1 percent on the quarter. This also came after another reduction in Q3 2024, indicating a steady recalibration of costs as softer demand growth eased input requirements.
Tariffs have reshaped industry dynamics, placing additional short-term cost pressures on many construction materials and components. The extent of those increases, and duration, remain challenging to assess. Particularly due to the changeable nature of US trade policy.
From an import perspective there are risks. However, Canada’s construction industry exposure to cost increases is somewhat sheltered. Depending on the sector and asset class, around 10 percent (+/-5 percent) of a project's overall construction costs are linked to US imports. The CAD exchange rate could also impact costs, with a depreciating currency making imports more expensive. The Loonie’s performance is not a given, however, and import costs could reduce should it appreciate.
Substitute products from China and other locations could drive down costs to a degree as well, with US steel costs significantly higher than other markets – Figure 5. Although reductions are not guaranteed, as considerations must be made for potential project delays from alternative sourcing and quality concerns can arise when procuring potentially inferior goods.
Source: Steelbenchmarker
From a domestic perspective, growing uncertainty has enforced change in Canada’s costs base as well. Forward purchases are becoming more prevalent, stockpiling has increased, and supply chains are starting to give notice of cost increases due to the ongoing trade war. Sometimes out of risk, sometimes out of legitimacy and others potentially from gaming the changeable situation. As such, it is important to interrogate cost variations as they arise and keep a firm eye on trusted data to encourage healthy supply chain conversation.
Labour
Construction wage growth increased by 1.7 percent on the year in Q4 2024 according to the average weekly earnings metric produced by Statistics Canada. That rate of growth, however, is much reduced from the highs seen in recent years and implies a degree of slack creeping into the market.
This dynamic is further evidenced in Figure 6 below. Following the COVID-19 pandemic, both construction employment and activity slumped as projects paused, and employees were furloughed and released. When workloads improved following the release of pent-up demand, activity growth increased at a much faster rate than employment growth - creating tension in the labour market. Since Q1 2023, however, employment growth has outpaced activity growth, resulting in less commercial tension and softer wage inflation.
Source: Bureau of Labor Statistics
Although wages continue to grow, their pace is slowing. This suggests that the construction industry is not necessarily experiencing a current shortage of labour and/or skills, but rather a misalignment between workforce capabilities and project requirements. Shortage claims could be influenced by the inability of construction firms to hire operatives at the wage rate they would like, rather than the going market rate. Of course, factors such as training, demographics and productivity can contribute to this dynamic as well, yet the existing picture suggests a greater emphasis on balance rather than imbalance.
Looking ahead, destabilizing effects and unintended consequences from the US’s global trade war could shift demand down in Canada, increasing slack in the market further. However, wages tend to be sticky. Corrections and reductions are not necessarily quick to transpire, nor do they always fully pass though. With unionized wage rates expiring on April 30th this year, and new agreements expected to be applied in May 2025, labour costs will likely have a set minimum moving forward. Montreal has already agreed to increases, and several other provinces are likely to see continued unionized wage growth.
Machinery and equipment
Machinery and equipment costs continued their upward trajectory in Q4 2024, but the rate of growth eased compared to previous quarters. General machinery and equipment posted a 1.0 percent rise, highlighting steady demand across multiple categories. Pumps and compressors saw smaller increases at 0.5 percent on the quarter, indicating consistent usage in both residential and industrial applications.
Power, distribution and other transformers led the increases, rising by 3.6 percent on the quarter. This reflects ongoing supply chain pressures and heightened demand for energy infrastructure projects, keeping these components at a premium. Medium and heavy-duty truck costs followed with a 2.3 percent increase, underscoring their importance for construction logistics and large-scale infrastructure development.
While costs remain elevated, the slower pace of growth offers some relief to industry stakeholders. The direction of travel for interest rates could also help with machinery and equipment affordability should further rate cuts materialize to support a weakening economy.
Source: Statistics Canada
