The selling cost indexes, which, in part, reflect shrinking subcontractor margins due to competition, are starting to see year-to-year changes flatten out after a series of steep double-digit declines.

The recession is expected to keep its grip on costs through the second half of this year, despite a shift in what is affected.

Prices for diesel fuel, structural steel, lumber and gypsum-wallboard products started to stir during the first quarter, but most increases were coming off dismal lows in 2009 and were not strong enough to break the stranglehold the recession has on construction costs.

The deepening recession in nonresidential building will keep a cap on costs, frustrating producers who are trying to take advantage of any signs of life in homebuilding.

The drop in materials prices is starting to bottom out, but that is being followed by fierce competition that is cutting margins and driving construction costs well below last year’s levels.

In less than a year the construction market has gone from owners fishing for bids to a bidding frenzy.

Over the last six months, the deepening recession its accompanying credit crisis have dramatically changed the construction industry’s cost picture.

The economic crisis has gone global, slowing contruction markets worldwide and knocking back inflation both in the U.S. and overseas.

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.

Two to three years ago, some contractors began retiring diesel pickup trucks and replacing them with gasoline units in anticipation of the rising cost of cleaner diesel fuel and lower-emission engines. But many never expected diesel to lose its longtime price stability.

As bad economic news continues to mount it is becoming increasingly clear that last year’s subprime mortgage crisis is spilling over into the overall economy and could eventually threaten still healthy commercial and public construction markets.