The pricing storm raging through the steel markets is breaking many industry cost indexes free of their moderate moorings, which kept average inflation below 3% for over a decade. But it isnt just steel products. Lumber, plywood, copper water tubing, stainless steel, wallboard and pipe prices have all contributed their share to higher prices.
"Everything is going up. Ive never seen these types of increases before," says Mary Wallers, president of Sierra West Group, which compiles the two Lee Saylor indexes. She says that projects are coming in higher than anticipated and expects inflation to "probably double" this year. Already, the Lee Saylor materials-labor index shows inflation jumping from 3.9 to 4.8% this quarter.
Overall, average annual inflation measured by 13 industry cost indexes rose from 2.5% in the previous quarter to 3.2% for the quarter ending last Januarythe latest month that data is available for all 13 indexes. However, this may just be the first wave of escalation.
In March, ENRs Building Cost Index posted an annual rate of increase of 5.8%, powered by annual increases of 8.7% for steel and 11.4% for lumber prices. Steel prices that will impact next months index are up another 5.5%. That alone would push the April BCI up another 1.1%.
R.S. Means is tracking price increases of 15 to 20% for bar joist, metal deck and structural steel, but those price hikes wont hit the Means index until next quarter, says Roger Grant, who is responsible for the index. Steel accounts for 12% of the Means index.
VIEW MORE ARTICLES FROM FIRST QUARTERLY COST REPORT
|Summary: Inflation's Sneak Attack|
|Steel: Industry stunned by huge price hikes|
|Equipment: Caught up in overheating steel|
|Labor: Costs hinge on settling union dispute|
|Methodology: What drives inflation|
VIEW RELATED DATA
|Builder's Construction Cost Indexes|
|Building Cost Trends|
"We see pressure on our index mounting as the year progresses," says Karl Almstead, who puts together the Turner Corp. index. He expects to see the index increase "5 to 6% for the year." That would be a remarkable turnaround for an index with an annual escalation rate that meandered below 0.5% for the last year.
Competition had been keeping the escalation of selling-price indexes such as Turners low, as subs absorbed higher prices by cutting margins to get work. "The squeeze in margins happened last year, particularly in the second half. You cant take it out of profits anymore because there is not enough left," says Almstead.
"I think out index will go up 4 to 4.5% this year because of [price] fluctuations in items like steel," adds Julian Anderson, who is in charge of the Rider Hunt Levett & Balley index. That would be another dramatic change for an index that is currently up 0.8% for the year.
Constructions Most Important Cost Indexes
The Austin Co., ClevelandThe index is based on pricing in major industrial areas for a 116,760-sq-ft steel-framed industrial structure and an 8,325-sq-ft office building. Estimates are based on labor and basic material costs including site work, electrical, mechanical, HVAC and process services. Published quarterly.
E.H. Boeckh Co., Milwaukee, a Marshall & Swift Co.The index covers 11 building types in 213 cities throughout the U.S. and 53 cities in Canada. The index has costs for 115 elements in each location19 building trades, 89 materials and seven tax and insurance elements. Boeckh researches both union and merit shop wage rates, and the indexes utilize the prevailing wage for a specific location. The index reported here is an average of 20 U.S. cities for a composite of five types of commercial and industrial buildings. Published monthly.
Bureau of Reclamation, DenverBuRec publishes construction cost indexes for 34 different types of dam and water projects under its jurisdiction. ENR publishes these in its second and fourth quarterly cost reports. ENR publishes BuRecs general property index that measures costs for office and maintenance buildings associated with its projects. Published quarterly.
Engineering News-Record, New York CityENR publishes a construction and building cost index, updated in the first issue of each month. Click here for ENR's cost indexes on enr.com
Factory Mutual Engineering, Norwood, Mass.This is a weighted aggregate cost index based on the wage rates of eight trades and costs of seven materials. The weight of these factors in the index is derived from an analysis of construction inputs to five typical industrial buildings, ranging from a single-story, steel-framed warehouse to a multistory, reinforced-concrete building. The index reported by ENR is an average of 164 locations in the U.S. In addition, Factory Mutual computes indexes for residential construction as well as industrial process machinery and equipment. Indexes are available for Canada. Published semi-annually.
Fru-Con Corp., Ballwin, Mo.This index is based on an average industrial building in the St. Louis region, priced with the contractors current material and labor costs. The index is weighted by using different percentages of labor, concrete, mortar, clay products, lumber, plastics, metals, paint and glass. Published monthly.
Handy Whitman, BaltimoreThis is a six-region average index for a reinforced concrete building, published by Whitman, Requardt and Associates. The index reflects materials prices for ready-mix concrete, lumber, steel bars, brick, concrete block and wages for laborers and six skilled trades. Handy-Whitman indexes also are available for electric, gas and water utilities. Published semi-annually.
Marshall and Swift, Los AngelesThe index is an average of 100 U.S. cities that Marshall and Swift combines into various regional, district and national indexes. These basic indexes can be divided further into five building types: fire-proofed steel, reinforced concrete, masonry, wood and pre-engineered steel frames. Selected materials, labor rates, taxes, business factors, as well as the cost of construction funds, are factored into the indexes. The M&S index supplied to ENR is broken out into three regional indexes: the eastern region, which includes New England, Mid-Atlantic and Southeastern states; the central region, which includes Great Lakes, Plains, Southeast and Southwest states; and the Western region, which includes the Mountain, Southwest and Northwest states. In addition, M&S publishes equipment indexes for 48 industries. Also available from M&S are indexes for 18 Canadian cities. Published monthly.
R.S. Means Co. Inc., Kingston, Mass.This index is based on a composite building representing current design practices. It has quantity weightings assigned to 66 construction materials, 21 crafts and 6 types of construction equipment rentals. The index published here is an average of the 30 largest U.S. cities. A breakdown for 305 other U.S. and Canadian cities is available. Published quarterly.
Lee Saylor Inc., SacramentoThe firm compiles two indexes. The labor-material cost index weighs labor and materials at 54% and 46%, respectively. The labor factor is based on quotes for nine crafts in 16 cities. The materials factor reflects 23 materials in 20 cities. The index can be broken out by concrete, steel or wood framing. The subcontractor index expresses an unweighted composite of in-place unit prices for 21 materials. Both indexes are compiled by The Wallers Group, Sacramento. Published monthly.
SmithGroup, DetroitThe index expresses actual in-place project costs. It uses building materials costs, freight rates and skilled and unskilled labor rates. It also factors labor efficiency and premiums, bidding competition, contractor profit margins and overhead. Contractor overhead includes taxes, project duration and material-expediting and labor procurement costs. The weighting method is the result of reviewing actual contractor schedules for values over several years. The index is based on 60% labor and 40% material. Published monthly.
Turner Construction Co. Inc., New York CityThis is a general building contractor price index based on actual selling prices that reflects current experience on labor rates, materials prices, labor productivity, management and plant efficiency and competitive conditions on projects across the U.S. Published quarterly.
U.S. Dept. of Commerce, Washington, D.C.Commerce publishes two construction-related cost indexes. The Composite Fixed-Weighted index is a ratio of the annual value of new construction put-in-place in current dollars to comparable values in 1992. The index reflects only changes in price. The Implicit Price Deflator is a similar index but reflects market conditions as well as price. Published monthly.