Construction input cost analysis
Input cost rise unilaterally in Q1 2024, buffeted by geopolitical tensions and capacity constraints
Materials
Our bespoke Materials Cost Index, comprised of several Producer Price Indices from Statistics Canada, saw material cost in Canada grow by 1.1 percent on the quarter in Q1 2024.
An increase in global commodities has driven much of this change. Aluminum, copper and tin have increased by 17.7, 22.1 and 26.3 percent, respectively, in the three months to May 2024. This could see cost pressures increase for cladding and curtain walling products and Mechanical, Electrical and Plumbing (MEP) items.
Oil has also increased of late, with the average price of a barrel increasing by 9.9 percent on the year to May 2024. This is placing additional cost pressures on energy-intensive construction material and components, such as concrete, steel and asphalt.
This uptick in cost has been supplemented by global supply chain disruption amidst continued conflict in the Middle East. Wider increases, and the impact on materials in Canada, are not expected to be rampant with the softening of domestic demand partially nullifying some of the raw material and global freight cost increases.
Additionally, while global shipping container freight costs have more than doubled in the 12 months to May 2024, domestic freight costs have fallen. In March 2024, the total cost of ground transportation for Canadian shippers decreased by 1.5 percent on the month, suggesting that Canada may be somewhat insulated to a certain extent from global freight issues.
Source: World Bank
Labour
Construction wage costs continue to increase despite growing labour market slack. Average weekly earnings (including overtime) in construction saw an uplift of 2.1 percent on the year in Q1 2024. The compensation of employees working in the construction industry also increased by 3.0 percent over the same period. Both these metrics are adjusted for seasonality; however, some non-seasonally adjusted data implies that wage growth could be a little higher. Either way, wage pressures are easing and rates of growth are moving closer to values seen prior to COVID-19.
Source: Statistics Canada
Labour costs are still increasing, however, and average weekly earnings are 15.8 percent higher than 2019 Q4. The coming months and quarters could see further softening of earnings potential.
Construction’s unemployment rate increased further to 6.0 percent in May 2024. At the same time, construction employment recorded its greatest month on year reduction since February 2021 – falling by 2.2 percent. Historical challenges, such as low availability and skills shortages, act to maintain a persistent outlook for growing labour costs.
Machinery and equipment
While construction machinery and equipment costs account for a relatively small proportion of input costs, they remain a notable cost driver for the construction industry.
Rising oil prices have added pressure to the expense associated with operating construction machinery and equipment of late. Major projects and programs are also exercising their ability to procure items ahead of time, reducing the availability of key items, for example excavators. High infrastructure expenditure is sustaining that need.
As a result, machinery and equipment costs have increased again in Q1 2024, growing by 1.2 percent on the quarter. Over the year, Q1 2024 vs. Q1 2023, machinery and equipment costs increased by 4.8 percent. This increase follows on from alterations to data published last quarter, where quarter on year information in Q4 2023 were revised up to 5.7 percent from the previously posted 4.8 percent.
Source: Statistics Canada
Overall, machinery and equipment costs should settle further notwithstanding external shocks. Although, should that pace of growth come down, it will be a steady transition.
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