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.
Q: What is the difference between ENR’s Construction Cost Index and its Building Cost Index?
A: The difference is in their labor component. The CCI uses 200 hours of common labor, multiplied by the 20-city average rate for wages and fringe benefits. The BCI uses 68.38 hours of skilled labor, multiplied by the 20-city wage-fringe average for three trades—bricklayers, carpenters and structural ironworkers. For their materials component, both indexes use 25 cwt of fabricated standard structural steel at the 20-city average price, 1.128 tons of bulk portland cement priced locally and 1,088 board-ft of 2x4 lumber priced locally. The ENR indexes measure how much it costs to purchase this hypothetical package of goods compared to what it was in the base year.
Q: What kinds of construction do the ENR indexes represent?
A: The two indexes apply to general construction costs. The CCI can be used where labor costs are a high proportion of total costs. The BCI is more applicable for structures.
Q: Where does ENR get its data?
A: ENR has price reporters covering 20 U.S. cities who check prices locally. The prices are quoted from the same suppliers each month. ENR computes its latest indexes from these figures and local union wage rates.
Q: Does ENR have cost indexes for cities outside the U.S.?
A: ENR publishes indexes for two Canadian cities, Montreal and Toronto, each month. ENR’s Fourth Quarterly Cost Report includes the most comprehensive listing of international costs.
Q: Are material prices averaged?
A: No. ENR reporters collect spot prices from a single source for all of the materials tracked, including those in the index. The reporters survey the same suppliers each month for materials that affect the index. Actual prices within a city may vary depending on the competitiveness of the market and local discounting practices. This method allows for a quick indicator of price movement, which is its primary objective.
Q: Do the indexes measure cost differentials between cities?
A: No. This is one of the more common errors in the application of ENR’s indexes, which only measure the trend in an individual city and in the U.S. as a whole. Differentials between cities may reflect differences in labor productivity and building codes. Moreover, quoting bases for lumber and cement vary from one city to another. One city may report list prices while in another prices for the same material may include discounts.
Q: Are indexes seasonally adjusted?
A: No. This is an important point for users of the indexes to keep in mind. Wages, the most important component, usually affect the indexes once or twice a year. Cement prices tend to be more active in the spring while fabricated structural steel pricing tends to have monthly adjustments. Lumber prices, more dependent on local pricing and production conditions, are the most volatile and can change appreciably from month to month. Declines in indexes are most often the result of falling lumber and steel prices.
The study of an index movement for a period of less than 12 months can sometimes miss these important developments. Users of an index for individual cities also should watch the timing of wage settlements. Stalled labor negotiations may keep the old wage rate in effect longer than a 12-month period, giving the appearance of a low inflation rate.
Q: Is it more accurate to use an index that is closest to my home city?
A: No. The 20-city average index is generally more appropriate. Because it has more elements, it has a smoother trend. Indexes for individual cities are more susceptible to price spikes.
Q: Are annual averages weighted?
A: No. They are straight mathematical averages.
Q: Are the indexes verifiable?
A: Yes. ENR’s national indexes are updated in the first week of each month on the Construction Economics pages while indexes for individual cities appear in the second issue of the month. Prices for the indexes’ materials component are published in the preceding month on the Construction Economics pages.
Cement prices are in the first issue of the month, lumber prices in the third and steel in the fourth issue. Wage rates for all 20 cities are published in the Third Quarterly Cost Reports. The reader can compute ENR’s indexes by multiplying the published prices and wages by the appropriate weights, shown in the tables below, and summing the results.
Q: Does ENR forecast its indexes?
A: Yes. ENR projects its BCI and CCI for the next 12 months once a year in the Fourth Quarterly Cost Report. To reach its forecast, ENR incorporates the new wage rates called for in multiyear, collective-bargaining agreements and estimates for areas where new contract terms will be negotiated. ENR estimates the materials component by studying consumption forecasts and price trends.
Q: Does ENR ever change the weighting of the index components?
A: No. The components are always multiplied by the same factors. However, a component’s share of an index’s total will shift with its relative escalation rate.
Q: Has ENR ever changed the makeup of the index components?
A: Yes. Only once, in 1996. ENR was forced to switch from the mill price for structural steel to the 20-city average fabricated price for channel beams, I-beams and wide-flanges when ENR’s sources for mill prices left the structural market.
Q: Does ENR revise the indexes?
A: Yes. On some occasions, ENR must revise the indexes. For example, ENR revised its March 2004 indexes shortly after their initial publication to reflect the huge surcharges being placed on structural steel. Revisions to national indexes are published below. Revisions to indexes for individual cities are published in the tables on the following pages.
|HOW ENR BUILDS THE INDEX: 68.38 hours of skilled labor at the 20-city average of bricklayers, carpenters and structural ironworkers rates, plus 25 cwt of standard structural steel shapes at the mill price prior to 1996 and the fabricated 20-city price from 1996, plus 1.128 tons of portland cement at the 20-city price, plus 1,088 board-ft of 2x4 lumber at the 20-city price.|