U.S. Department of Transportation
Federal Highway Administration
1200 New Jersey Avenue, SE
Washington, DC 20590
This document describes the concepts and methodology for computing component contributions to the overall changes in NHCCI.
The National Highway Construction Cost Index (NHCCI) is an average cost index of a basket of components or goods and services for highway construction contracts across the United States. The basket consists of winning bids for state DOTs highway construction projects. Components, also called pay items, are construction inputs used to complete highway construction projects. A pay item is a unit of work, construction material, labor, or service for which price and quantity is provided in the contract. Examples of pay items are asphalt, concrete, sand and gravel, steel, electricity, construction labor, etc. The prices of pay items consists of the purchasing price, transportation and installation, and some component of overhead costs and profit margin.
FHWA reports changes in the NHCCI, which is caused by changes in individual components. Component contributions measure the impacts or contributions of price changes of individual or groups of components to the changes in the cost index. A total of 29 major components are utilized in the computation of the NHCCI. The list of those components is provided in the following table.
|Grading and Excavation|
|Buildings/ Miscellaneous Structures|
The contributions to changes in NHCCI can be expressed either in percentage points or percentage shares. If expressed in percentage points, the sum of contributions across all components equals to the overall percentage change in the NHCCI. If expressed in shares, the contributions from all components will sum up to 100%. The contribution of a component can be either positive (upward) or negative (downward).
The FHWA's procedure for computing contributions of components is adapted from the same concept used in calculating component contributions of the Consumer Price Index (CPI) by the Bureau of Labor Statistics (BLS). The procedure involves the computation of cost indexes and relative importance (weight) for each component. Chained Fisher Ideal Index formula is used for obtaining component cost indexes. The weight is the share of a component in the overall cost of highway construction and weights of all components add up to 100%.
The contribution of component m in percentage points (Pmt) and percentage shares (Smt) to a change in NHCCI from quarter t-1 to quarter t can be calculated using the following formulas:
Where: Total construction cost for period t = Ct
NHCCI for period t = Ict
Cost for component m and period t = Mt
Cost index for component m and period t = Imt
Weight for component m and period t = Mt ÷ Ct
The contribution of a component to the overall change in NHCCI depends up on its price change, and cost share (weight) in the overall cost of highway construction. The greater the weight of the component, the larger the contribution. The higher the change in the price of a component, the higher the contribution to the overall inflation. It is noteworthy that the price of a given component can decline for a given quarter and still contribute to increasing the overall inflation, if its price decline for the quarter is less than the decline in the previous quarter. Therefore, it is important to analyze the contribution of a given component for consecutive time periods (or for multiple time periods) to have a clear understanding of impact of the component on the overall inflation.
The procedure is developed to compute contributions for all 29 individual components, and by combining the 29 components in to smaller groups. FHWA currently publishes contributions for three groupings (25 groups, 13 groups, and 9 groups) based on similarity in component characteristics. The following table presents a crosswalk of the three grouping with the 29 NHCCI components.
|9 Groups||13 Groups||25 Groups||NHCCI Components|
|Grading/Excavation||Grading/Excavation||Grading/Excavation||Grading and Excavation|
|Concrete||Concrete||Concrete Pavement||Concrete Pavement|
|Base Stone||Base Stone||Base Stone||Base Stone|
|Drainage||Drainage||Drainage-Inlets/Catch Basins||Drainage-Inlets/Catch Basins|
|Traffic Control||Traffic Control||Traffic Control||Traffic Control|
|Traffic Control||Traffic Control||Guard Rail||Guard Rail|
|Traffic Control||Traffic Control||Fencing||Fencing|
|Traffic Control||Traffic Control||Signs-Permanent||Signs-Permanent|
|Traffic Control||Traffic Control||Striping/Pavement Marking||Striping/Pavement Marking|
|Utilities, erosion control, clearing, painting and equipment||Erosion Control||Grassing||Grassing|
|Utilities, erosion control, clearing, painting and equipment||Erosion Control||Erosion Control||Erosion Control|
|Utilities, erosion control, clearing, painting and equipment||Erosion Control||Retaining Wall||Retaining Wall|
|Utilities, erosion control, clearing, painting and equipment||Erosion Control||Miscellaneous Stone/Riprap||Miscellaneous Stone/Riprap|
|Utilities, erosion control, clearing, painting and equipment||Clearing||Clearing||Clearing|
|Utilities, erosion control, clearing, painting and equipment||Structures||Painting Structures||Painting Structures|
|Utilities, erosion control, clearing, painting and equipment||Structures||Buildings/ Miscellaneous Structures||Buildings/ Miscellaneous Structures|
|Utilities, erosion control, clearing, painting and equipment||Utility||Utility||Utility-Water|
|Utilities, erosion control, clearing, painting and equipment||Utility||Utility||Utility-Gas|
|Utilities, erosion control, clearing, painting and equipment||Utility||Utility||Utility-Sewer|
|Utilities, erosion control, clearing, painting and equipment||Equipment/Labor||Equipment/Labor||Equipment/Labor|
Contribution estimates are measures of the contribution of different components to the overall inflation (deflation) in highway construction in the United States. Component contributions quantify the role of each or groups of components to the overall changes in the NHCCI. The estimates are useful for determining and monitoring the underlying drivers of changes in construction costs at the national level.
For example, as displayed in the following table and chart, NHCCI grew by 1.54% from the third quarter to the fourth quarter of 2018. During this period, asphalt, and grading/excavation were found to be the leading drivers of the growth in highway construction costs. They contributed 0.57 and 0.49 percentage points, respectively, to the 1.54% growth in the NHCCI. The largest downward contribution to this growth was made by clearing. Clearing contributed negative 0.33 percentage points.
Example of Contributions for a 1.54% growth in NHCCI from the 3rd Quarter to the 4th Quarter of 2018
|Component||Percentage Points||Percentage Shares|
Example of Contributions for a 1.54% growth in NHCCI from 2018 Q3 to 2018 Q4
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