Construction input cost analysis
Material cost recovery halted, labor and machinery and equipment costs are maintained
Materials
In Q1 2024 US construction materials and component costs increased by 1.1 and 1.4 percent on the quarter and years, respectively. This leaves materials costs just 3.6 percent below the peak seen in Q2 2022 and 37.2 percent up from pre-COVID-19 values.
The recent upwards shift has been driven by growth in concrete products, insulation materials, and external works, some of which continue to be impacted by high infrastructure workloads. While materials growth rates are much reduced when compared to the rapid increases seen in the two years after the pandemic, costs are still high.
Source: Bureau of Labor Statistics
Recalibration to pre-COVID-19 levels looks to be some way off. However, the Global Supply Chain Pressure Index fell to -0.85 in April 2024, indicating that supply chain challenges are easing when compared to historical averages. A more benign backdrop should provide comfort that the recent increases to material costs may not be part of an upward trend cycle.
Labor
March 2024 posted the greatest reduction in the number of construction job openings on record, which almost halved - reducing by 182,000. Monthly data can be volatile, so it is important to look behind the numbers. However, quarterly data, which is less prone to shocks, saw job openings fall by 11.2 percent in the three months of Q1 2024.
Despite this, construction employment continues to strengthen. As of Q1 2024, employment grew by 0.9 and 3.0 percent on the quarter and year, respectively. These are healthy gains, yet compared to peaks prior to COVID-19 and the Global Financial Crisis, employment is only up by 7.9 and 6.0 percent, respectively.
While job openings have shallowed out, and could soften further with easing demand, there still is a strong underlying need for skilled construction labor. Until rectified, construction wages are likely to remain elevated. Average hourly earnings and total compensation paid by those operating in the construction sector grew by 5.1 and 3.8 percent on the year, respectively, as of Q1 2024. There is a steady reduction in terms of growth rate, but not a significant one.
Source: Bureau of Labor Statistics
Machinery and equipment
Construction machinery and equipment costs recalibrated further in Q1 2024, with growth softening to 1.0 and 4.2 percent on the quarter and year, respectively. High-growth items are once again familiar, with excavators, generators, and cranes increasing by 11.9, 4.0 and 3.9 percent on the year as of Q1 2024.
Bulk buying of generators and forward purchases continue to occur on major projects and programs. Excavators are increasingly sought after to break ground on new projects and cranes are required to satiate buoyant activity levels.
Implications stemming from the Francis Scott Key Bridge collapse in Baltimore on March 26, 2024 could, however, see machinery and equipment cost growth reductions put on hold. In 2023, the port of Baltimore saw US$59bn worth of imports pass through its corridors. Approximately 15.3 percent of those, US$9bn, came from machinery, which had a high proportion linked to construction. Machinery and equipment could see a reduction in availability due to the implications of the bridge collapse and even a short-term increase in costs.
Source: Bureau of Labor Statistics
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