Record high oil and steel prices during the first half of the year were just starting to work their way into construction industry cost indexes when the financial meltdown on Wall Street threatened to drastically reduce the demand side of the cost equation. Commodity prices had already started to slip from their second-quarter peaks, but that slip could turn into a major step back as commercial construction gets sucked into the subprime-mortgage debacle.
“Our forecast was already looking for a decline in nonresidential building work this year,” says Robert Murray, chief economist for McGraw-Hill Construction, of which ENR is a unit. “Recent economic events will make a tough situation more difficult and more extended.” Murray was predicting a 13% decline this year in square footage of new nonresidential buildings, followed by another 7% decline in 2009. “That forecast will be lowered as a result of the freezing up of the financial markets,” he says.