According to RSMeans, U.S. construction costs have either been falling or flat for the past year-and-a-half. On a quarter-to-quarter basis, the declines were most pronounced in April of last year. On a year-over-year basis, the largest drops showed up last October. However, from one quarter to the next, construction costs have barely moved at all since summer a year ago.

Over the past decade, there were two standout peaks for construction costs. These occurred in early 2004 – coinciding with China’s emergence as an economic powerhouse and the highly charged new home construction market in the U.S. – and in early 2008, when commodity prices world-wide had record pick-ups even as the stage was being set for the credit crunch collapse.

Some hints at higher prices are starting to emerge. China’s economy continues to stroll vigorously along its growth path. That nation’s share of world copper, zinc and aluminum production has moved up to 40%. For nickel, it is about 30%. By way of comparison, U.S. demand for each of those four key commodities is now only about 10% of the global total.

In other words, the prices of key commodity inputs into building construction materials are determined by economic circumstances outside North America, mainly in China, Southeast Asia and India. That’s the demand side. On the supply side, three countries within the G20 grouping of most influential nations are storehouses of raw materials: Canada, Australia and Brazil.

The ex-prime minister of Australia, Kevin Rudd, has just been sacked by his own party due to a controversial proposal to slap a super-tax (40%) on the profits (beyond a certain threshold) of resource firms. Huge mining companies based in Australia, including Rio Tinto and BHP Billiton, mounted massive and aggressive public relations campaigns against the proposal.

As a consequence, Kevin Rudd came under leadership review by his own party and has been replaced by Julia Gillard, who has indicated a willingness to listen to raw materials producers and back off from the proposed restrictive tax measures. This will help to keep prices down.

On the labor side, U.S. job-site construction employment topped out at 7.7 million for a period of time extending from 2006 through mid-2007. Since then, jobs in the construction sector have dropped by 2 million, or slightly more than one quarter. They appear to have bottomed out and, with even a little help from the housing sector, may soon be trekking along the comeback trail.

Labor material cost increases year over year right up to the present have been above 4.0% according to Means. That’s based on either the firm’s installation index or its 30-city average hourly wage rate index. Both of these have high mandated union-wage-agreement components. 

With respect to overall price movements in the U.S. economy, the May Consumer Price Index (CPI) change year over year was +2.0%. The core inflation rate, which omits volatile food and energy components, was only +0.9%. The Federal Reserve certainly isn’t worried about inflation at this time, with its pledge to keep interest rates at record lows at least into early 2011.

Materials sub-component of CCI – latest movements		Installation/Labor Sub-component of CCI – latest movements
30-city average hourly labor rates for skilled workers (20 trades) (including fringe benefits)