Cost Trends Newsletter Reference Information

The Hixson Cost Trends Newsletter is intended to inform our clients about construction cost trends relevant to Hixson’s four strategic business units, including GMP Food & Beverage, Workplace/Office, Retail, and Research & Development/Laboratories. In recent years, we have expanded the Cost Trends Newsletter to include factors impacting labor, equipment, and contractor markups, in addition to reporting material cost trends, since material costs may represent 30%-70% portion of the direct costs of a project (depending on the specific makeup of work involved in a project). Most recently, we have improved our delivery of the Cost Trends Newsletter, by producing graphs in-house, directly from the U.S. Bureau of Labor and Statistics (BLS). This enables us to better control the consistency of the appearance of our graphs, in a more time-responsive manner, without having to rely on waiting for others to publish their data. Note that opinions shown reflect best judgments from various sources.

Below, please find additional explanatory information pertaining to data used in the Cost Trends newsletter.

Current Trends
The Current Trends Section provides a summary of noteworthy factors which we believe may have the greatest impact to construction costs of our clients’ projects.

In the News – Highlights
In the “In the News” Section, we highlight news headlines which caught our eye during our Cost Trends Newsletter research, which potentially could be significant game changers to our Client’s projects cost trends.

1.  U.S. Construction Costs:
In the U.S. construction Costs Section we report the major Cost Indexes, including the Consumer Price Index, Engineering News Record (ENR) Construction Cost Index (CCI), ENR Building Cost Index (BCI), ENR Material Cost Index and Rider Levett Bucknall’s (RLB) Construction Cost Index (CPI). The CPI and ENR Material Cost Indexes are a composite of material prices provided by the U.S. Bureau of Labor Statistics and ENR, respectively.

The ENR CCI and BCI are composite cost indexes which combine both material and labor. Per ENR, “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 2×4 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.” http://www.enr.com/economics/faq.

2.  Leading Indicators of Construction Industry:
The Architectural Billings Index (ABI) and the Dodge Momentum Index are leading economic indicators for construction activity. As defined by the AIA, the ABI “is a diffusion index derived from the monthly Work-on-the-Boards survey, conducted by the AIA Economics & Market Research Group. The ABI serves as a leading economic indicator that leads nonresidential construction activity by approximately 9-12 months. The survey panel asks participants whether their billings increased, decreased, or stayed the same in the month that just ended. According to the proportion of respondents choosing each option, a score is generated, which represents an index value for each month. An index score of 50 represents no change in firm billings from the previous month, a score above 50 indicates an increase in firm billings from the previous month, and a score below 50 indicates a decline in firm billings from the previous month.” http://new.aia.org/resources/10046-the-architecture-billings-index.

The Dodge Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. https://www.construction.com/news.

3.  Construction Spending:
Construction spending is reported by the U.S. Census Bureau, measures the dollar volume of construction put-in-place, measured in billions of US dollars. Construction spending is separated into public and private construction, residential and non-residential construction, and several different building type sectors including office, food/beverage, multi-retail, and manufacturing. Rapid changes in construction spending often reflect the changes contractors and suppliers experience and may indicate cost trends and resource concerns.

4.  Construction Backlog Indicator (CBI):
Reported by the Associated Builders and Contractors (ABC), the CBI is a forward-looking national economic indicator that reflects the amount of work that will be performed by commercial and industrial contractors in the months ahead. This unique national economic data set focuses on the U.S. commercial and institutional, industrial, and infrastructure construction industries. The construction backlog data is separated by size of contractors and geographic regions of the U.S., and is a measure of months of available work based on backlogs (reported in dollars), that construction companies are contracted to do in the future. It is a good indicator of how busy contractors are. Download the methodology.

5.  Construction Employment and Unemployment:
Construction employment and unemployment is reported by the U.S. Bureau of Labor Statistics. Changes in construction employment and unemployment often reflect availability of qualified labor resources to complete projects and potential rate of wage increases.

7.12  Construction Materials:
Hixson Cost Trends Newsletter reports on construction materials which make up significant portions of Hixson project’s material costs and where we see the greatest price change or potential anticipated price changes. Therefore, the materials about which we report may vary somewhat in each Cost Trends Newsletter, but frequently include asphalt, concrete, structural steel, stainless steel, copper, and a variety of types of pipe. Also, we may report on some key raw and component material costs, such as Nickel, which is a key raw material component of stainless steel and gas; diesel and oil prices, which impact heavy equipment costs, freight and delivery costs; and many petroleum-based materials, such as asphalt, plastics, some insulation, and roofing materials. Other materials which we may report, if we see significant impact on Hixson projects, include aggregates, aluminum, gypsum products, lumber and plywood, etc.

 

We welcome your comments, questions, and suggestions. Please contact: Michael E. Downing, CPE-Lifetime, LEED AP BD+C,
Hixson Manager Cost Estimating
mdowning@hixson-inc.com