A sharp increase in lumber prices at the end of the third quarter more than compensated for a collapse in the price of fabricated structural steel, boosting ENRs indexes to their largest year-end increase since 1996. ENRs Construction Cost Index ended the year with a 3.3% increase, just 0.2% shy of what was projected a year ago. The Building Cost Index increased 3.2% this year, 0.9% higher than ENR predicted. By December of next year, ENR forecasts a 3.4% increase in the CCI and a 3.0% increase in the BCI.
This year, both indexes were powered by relatively large wage increases. But the BCI received an extra kick from an 8.4% jump in lumber prices, which lifted the materials component of the index 1% above 2002s level. This reversed annual declines for the MCI of 3.2, 3.3 and 3.0% during the three previous years.
In 2004, ENR expects wage settlements to remain close to those reached this year. However, ENRs forecast calls for lumber and steel to reverse roles with lumber prices declining 2.7% next year as fabricated structural steel prices rebound 5.5% from this years 4.3% price cut.
The most critical element in forecasting ENRs indexes is labor costs. It accounts for 82% of the CCI and 66% of the BCI. In 2003, ENR found union wage and fringe benefits averaged annual gains of 3.9% for laborers and 4.4% for skilled workers. This tracks closely with the 4.1% national average increase reported by The Construction Labor Research Council, Washington, D.C. Multiyear collective-bargaining agreements tracked by CLRC call for another 3.8% increase next year.
ENR expects the labor cost component of its indexes to be within striking distance of increases already negotiated for next year and predicts a 3.8% increase for its Common Labor Index and a 3.6% increase for the Skilled Labor Index.
The outlook for materials costs next year follows market forecasts that call for a decline in residential construction but a rebound in office and commercial building work in 2004 (ENR 11/17 p. 34).
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McGraw-Hill Construction Dodge is forecasting a 2% decline in the dollar value of new single-family housing next year, which should pull the rug out from under this years lumber increases. In addition, it is widely anticipated that the U.S. and Canada will finally reach an agreement in their dispute over Canadian lumber imports. The reduction or elimination of tariffs on Canadian lumber should help reduce prices. ENR expects the lumber component of its indexes to decline 2.7% by the end of 2004.
While the fabricated structural steel component of ENRs indexes closed 2003 4.3% lower than a year ago, it did so in the face of stiff price increases from the mills. Fabricators will not be able to afford to absorb these higher mill prices throughout 2004. McGraw-Hill Construction Dodge is forecasting industrial, office and commercial work to increase 9, 10 and 15%, respectively, next year. ENR believes this will give fabricators enough elbow room to pass along some of the higher mill prices, resulting in a 5.5% increase in the steel component of ENRs indexes in 2004.
The Portland Cement Association, Skokie, Ill., is forecasting cement consumption in 2004 to increase 0.7% next year. In addition to the modest increase in demand, higher freight costs could put a crimp in cement imports, which account for about one-fifth of the market. The combination should be enough to push cement prices up 1.8