Over the last six months, the deepening recession its accompanying credit crisis have dramatically changed the construction industry’s cost picture. Construction inflation has gone from the double-digit realm just last summer to between 2% and 6% this quarter. Ten of the 14 major industry cost indexes collected by ENR for this report posted declines during the first quarter, ranging from 0.5% to 8.4%. Slide Show Photo: Michael Moore Related Links: Renegotiations Make Bad Times Worse Labor Deals with Uncertainties Finding Cost Data on the Internet What Drives ENR’s Cost Indexes How To Use ENR’s Cost Indexes View Complete Report with

Although ENR’s cost indexes measure the costs of nonresidential buildings, the downturn in the housing market still has a major impact on index movement. During this quarter, lumber prices in the indexes were down another 1.8%, after dropping 23% over the previous four years. Falling lumber prices had been offset by surging steel prices. However, the current recession has sent steel prices tumbling. As a result, the Building Cost Index (BCI) fell 1.8% this quarter, pulling the year-to-year escalation down from 7.3% last fall to 4.3% this month. The Construction Cost Index (CCI) is less affected by these swings in

Readers of ENR generate a steady stream of questions about the magazine’s indexes and how to accurately apply them to construction projects. To help clarify the nature and uses of the cost indexes, here are answers to the most frequently asked questions and suggestions on how to avoid costly mistakes. Related Links: Inflation Reverses Course As Recession Floors Prices Renegotiations Make Bad Times Worse Labor Deals with Uncertainties Finding Cost Data on the Internet What Drives ENR’s Cost Indexes View Complete Report with Data and Analysis Q: What is the difference between ENR’s Construction Cost Index and its Building Cost

Inflation had its last hurrah during the first half of this year and it was quite impressive with both steel and oil prices soaring to record levels despite a subprime mortgage crisis that was destroying the housing industry. But then the Fat Lady sang and the full extent of the financial crisis started to reveal itself. With banks, insurance companies, Wall Street investment firms and the automotive industry all lining up for bailouts, commodity prices started to tumble. Oil prices fell from over $140 per barrel to less than $70. Steel prices also started to head down and economists expect

Although the U.S. credit crisis has spread north of the border, Canada’s tighter regulations and healthy financial system are insulating it from the more severe repercussions seen in the U.S. However, Canada cannot shield itself from the growing recession in the U.S. (Click to Enlarge Image) Source: Statistics canada; percent change from year-to-year Canadian Materials Cost Trends Related Links: Credit Cancer Kills Prospects for Recession-Proof Global Economy Global Financial Crisis and Recession Is Knocking Down Inflation Worldwide Even Overheated Gulf Market Moves Into a Slump in a Changing Economy Prices Go Awry Amid Shifting Markets Downturn in China Leads Retreat

The housing contagion is starting to infect healthy nonresidential-building and public-works markets. The sub-prime mortgage virus has devastated the credit markets, causing sickness in the stock market and forcing the federal government to put virtually the entire financial system on life support. Given the economic backdrop, it is hard to find a pulse in this year’s batch of construction industry forecasts for 2009. McGraw-Hill Construction (of which ENR is part) is forecasting a 7.4% decline in construction starts in 2009, following declines of 12.4% this year and 8.0% in 2007. The U.S. Dept. of Commerce forecasts a 7.5% decline in