RSMeans’ Construction Cost Index for 30 major cities remained under wraps for the latest reporting period, January 2010. The year-over-year change was negligible, at only -0.5%. The quarter-to-quarter change annualized was +1.3%. The sharpest quarter-to-quarter annualized decline in the index was most recently recorded in April 2009, at -7.9%. The greatest quarter-to-quarter annualized increase in the index occurred in July 2008, at +18.5%. July 2008 was when world oil prices were at their all-time peak as they climbed in excess of US$140 per barrel.

Materials and labor

The year-over-year change for the materials sub-index in January 2010 was -4.8%. The changes were also negative as reported in October 2009 (-6.5%) and July 2009 (-4.7%). On a quarter-over-quarter annualized basis, the material component sub-index increased 0.4% in January 2010. Oil prices have recovered halfway between their peak level and their trough point in early 2009.

In the most recent 12 months for material costs, weakness has been particularly noted in concrete reinforcing (-30.7% year over year), metal joists and decking (-26.2% y/y), plaster and gypsum board (-15.2% y/y), ceilings and acoustic treatment (-13.8% y/y) and structural metal framing (-8.8% y/y). The quarter-to-quarter price changes in those components, with the exception of ceilings and acoustic treatment, have moderated considerably to a range of -3.0% to +1.0%.

The installation or labor component in the index was +2.4% annualized in January 2010. The year-over-year change in the 30-city average hourly rate for skilled workers (i.e. 20 trades) was +4.6%. This reflects gains that are protected under union contract, where work is available. The compensation rates for the non-unionized sector of construction are undoubtedly much lower.

The outlook

The outlook for construction costs depends on market demand and commodity prices. National homebuilding remains sluggish, but should start to pick up in the second half of this year. Privately-financed non-residential building construction will remain largely depressed until labor markets show signs of improving. However, a better foundation is being set in place with the improvement in corporate profits of the last several quarters, the exceptionally low interest rates and an easing of credit that will gather momentum as long as the economy avoids a double dip in activity levels. Engineering work is receiving a boost from Washington’s stimulus spending, although tax-deprived state and local governments will hold off on many capital projects.

Commodity prices are being prodded upward by exceptional growth overseas. China and Southeast Asian nations are forging ahead with output levels in excess of expectations. Demand for steel, concrete, copper, nickel and other minerals and metals will provide prices with an upward bias. The earthquake in Chile sent copper prices skyrocketing, but this will settle back down as it becomes clear that demand is not yet ready to absorb all non-Chilean mining supplies.

Materials sub-component of CCI – latest movements		Installation/Labor Sub-component of CCI – latest movements
30-city average hourly labor rates for skilled workers (20 trades) (including fringe benefits)