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For October 2007, RSMeans’ U.S. 30-city average Construction Cost Index (CCI) recorded a year-over-year increase of +3.4%. This was the lowest year-over-year gain for this measure in almost four years, dating back to January 2004. Furthermore, the annualized quarter-to-quarter gain was even less at +2.1%.

Material costs are still increasing faster than labor. In the latest quarter, the cost of materials increased +3.5% year-over-year, while on a quarter-to-quarter annualized basis, they grew +2.6%.

The year-over-year change in installation/labor costs was +3.2%. The annualized quarter-to-quarter change for labor was only +1.1%. A further measure of construction labor costs is the year-over-year change in hourly labor rates for 20 skilled trades. This measure made a gain of +3.6%, which is very close to the +3.8% year-over-year increase in both average hourly wages and average weekly earnings for the whole economy.

Costs and Materials

Current Quiet Period for Construction Costs Likely Won’t Last
The current period of quiet on the construction costs front is primarily the product of two factors — seasonality going into the winter months, when construction is less active, and weak residential markets that have acted as a safety valve, relieving pressure on construction costs in general, both material and labor.

By the halfway point of 2008, construction material prices are likely to have received a nudge upwards from: (1) an overheating Chinese economy that will continue to inflate commodity prices; (2) energy markets and prices that are subject to considerable volatility; (3) a U.S. residential market that is in the process of stabilizing; (4) the delayed impact of rising import prices as a result of the several-years decline in value of the U.S. dollar; and (5) the stimulus provided to non-residential building construction by the Federal Reserve’s interest rate cuts this fall.

For more insight on the outlook for construction costs, please also see the Reed Construction Data story entitled, “Construction Inflation Soars in November”.

For more information, please see Latest Construction Cost Index Change is Below Consumer Price Index Change and City Construction Cost Increases Moderate Significantly.
Posted in Market Insights and Costs & Materials

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