The recession wasn’t supposed to last this long nor be this deep. Federal stimulus spending was meant to return us to prosperity as opposed to just diverting financial disaster. But taking a few steps back from the precipice may be the best our stimulus money could buy. The trillion-dollar construction market of a few years ago now appears to have been an illusion, and an $800-billion annual market may be the new reality. In the pop of a bubble, a fifth of the construction market may have evaporated, leaving the industry to make drastic adjustments. + Images Related Links: Market:

The recession is expected to keep its grip on costs through the second half of this year, despite a shift in what is affected. Construction costs heavily influenced by residential construction have already bounced up from historic lows, but that may be coming to an end, along with the expiration of federal tax credits for first-time homeowners. Costs associated with the nonresidential building markets have bottomed out. But while there is not much room for further declines, there is also very little upward pressure from either the labor or materials markets on the nonresidential building cost indexes. Image Related Links:

...Insight steel analyst. But even those price levels may be too high. “I don’t see how low worldwide demand can support these prices,” he points out. Steel prices are being driven not by demand but by a surge in scrap prices. “Scrap prices have gone crazy since late 2009. They are now just below 2008’s peak, and they could end up duplicating the 2008 spike,” says Anton. “Right now, inventories are thin, which is allowing higher prices to sneak back in. But once inventories are restocked, I think we will see prices fall back off.” The China Connection The inventory

Although ENR’s cost indexes measure the costs of non-residential buildings, the downturn in the housing market still had a major impact on index movement. During this quarter, lumber prices in the indexes slipped another 0.8% after dropping 27% over the previous five years. Falling lumber prices had been offset by surging steel prices in 2008. However, steel prices were rolled back in 2009 and are just now firming, but with an uncertain future. Source: ENR Construction Economics Dept. Related Links: Economics: Despite Upturn in Steel, Lumber and Energy Prices Deflation Sweeps Cost Index Board Markets: Survey Shows Contractor Confidence Slowly

Prices for diesel fuel, structural steel, lumber and gypsum-wallboard products started to stir during the first quarter, but most increases were coming off dismal lows in 2009 and were not strong enough to break the stranglehold the recession has on construction costs. Eleven of 15 major industry cost indexes tracked by ENR showed costs falling below a year ago. These drops included year-to-year declines of 5.8% for warehouse construction, 4.7% for office buildings and 1.7% for school construction, according to the U.S. Commerce Dept.’s January cost indexes. The agency also reported in January another 3.6% decline in homebuilding costs during

The depth of the current recession is best measured by declines in construction costs, and they have taken their biggest tumble since the Great Depression of the 1930s. McGraw-Hill Construction forecasts that the recession will tighten its grip on the nonresidential building markets next year despite the best stimulus efforts. It is forecasting the dollar value of nonresidential building starts to fall another 2% next year, following a 30% decline in 2009. Even with a predicted 32% increase in housing starts in 2010, the deteriorating nonresidential building market and double-digit unemployment will keep construction costs on a short leash in

The decline in construction activity this year was broader, steeper and faster than many economists anticipated as private non-residential building markets succumbed to the credit crunch and many public markets waited for stimulus funding to be delivered. The consensus of this year’s batch of forecasts for construction in 2010 says the worst is over, but most gains will be the result of percentage comparisons with dismal 2009 numbers, while market fundamentals will be unable to sustain much forward momentum. Wall Street analyst sometimes call this activity a “dead-cat bounce.” Slide Show Source: McGraw-Hill Construction. Annual percent change for dollar volume

China went on a commodity buying binge during the last eight months, snapping up materials that had tumbled from record high levels during the first quarter of 2008 to bargain prices by the beginning of this year. The Chinese purchases were so significant that they were primarily responsible for the recent rebound in global prices for a number of commodities, say industry sources. Photo: iStock Photo China is buying copper ingots and stockpiling it in warehouses and ports. Source: IHS Global Insight Related Links: Competition Intensifies as Recession Deepens Industry Has Little Confidence About Near-Term Market Gains Medical Costs Trump

Some economist have dubbed the current economic troubles “The Great Recession” to differentiate it from the Great Depression of the 1930s. While there are significant differences between the two economic calamities, there is one striking similarity: a sharp and prolonged decline in construction costs. Source: Turner Construction. Year-to-year percent changes for selling price of construction. Turner’s cost index Source: BLS. Forecast by IHS Global Insight Blip in Lumber Prices Source: IHS Global Insight Housing starts firm Related Links: Industry Has Little Confidence About Near-Term Market Gains Medical Costs Trump Savings From Safety Recession Steadies Prices For Liquid Paving Product Airport

Construction costs took a major hit during the second quarter, with 14 of the 15 industry cost indexes tracked by ENR declining from the previous quarter. They were some of the biggest quarter-to-quarter declines ever recorded by ENR, averaging a 1.4% decline between January and April of this year. Photo: Michael Moore / SME Steel Contractors Prices for reinforcing bar tumbled by more than half over the past year. Related Links: Razor-Thin Margins As Contractors Fight For Stimulus Projects Firms Hold the Line on Raises, But Salaries Remain Competitive Slow Payment Is Sapping Contractors Strength A Strong Market Still Has