No more federal stimulus money, no highway bill, a weak economic recovery, a stalled housing market, a nonresidential building market yet to bottom out, gridlock in government, continued high unemployment—it could add up to no inflation in 2011. That is about as simple as a cost forecast can be. Inflation? Not so much. Engineering News-Record expects its Building Cost Index to increase just 1.3% next year after rising 3.6% in a difficult 2010 market. ENR projects its Construction Cost Index to increase 2.0% in 2011 following this year’s 3.6% gain.
The accuracy of ENR’s forecast is heavily influenced by union wage settlements, which account for 80% of the CCI and 65% of the BCI. With the economy still limping along and construction starts in a slump, there is little confidence that labor wages and benefits could improve significantly in 2011. Union settlements through 2011 will see an average increase of 3%, according to the Construction Labor Research Council, Washington, D.C. Bob Gasperow, president of the CLRC, notes that some of those increases were settled three years ago, before the economic downturn. “Those settlements [from three years ago] are still working through the system,” he says.