Posted on July - 16 - 2011
Construction Materials Price Index Falls 0.1% in June
Construction materials price inflation fell 0.1% in June after eleven consecutive monthly increases totaling 8.7%. This small drop is the result of both weaker product demand in the US construction and manufacturing markets as well as generally lower international commodity prices caused by both a catch up in commodity supplies and slower demand growth from a slowdown in economic growth in most large countries. The commodity price trend has clearly reversed; a period of price changes averaging slightly below zero should be expected. This will be relatively brief before materials price inflation returns to the 6-7% range in a stronger demand environment.
The significant price declines were for softwood plywood (-4.0%), gypsum products (-2.5%), steel pipe and tube (-1.5%), cement (-0.8%), aluminum (-0.7%) and softwood lumber (-0.6%). Note that lumber prices are up nearly 3.0% since the June survey week. The significant price increases were for viteous plumbing fixtures (+2.2%) plus energy and metal based products where the price of the raw commodity input had increased rapidly until the previous month. Diesel prices rose 1.4%, asphalt prices rose 4.0% and plastic construction product prices rose 1.5%. Diesel prices are up $0.05/ gallon since the June survey week. Also, builders’ hardware prices increased 1.3%. While more adjustment to higher raw material prices may occur in the next few months, none of these price increases suggest a new trend for substantial inflation for manufactured products.
The eleven month, 8.7% materials price surge came almost entirely from higher commodity prices set in international markets. It was about as long but a little weaker than price surges that occurred at the same stage of previous economic expansions. Generally, domestic commodities such as gypsum, cement and lumber, did not contribute to this price surge. Nor did materials whose costs are mostly in the manufacturing process, such as tools and equipment. The inflation pressure on the prices of domestically priced materials is still near zero. International price pressures will, as always, alternate between periods of rapid gains and brief declines driven by world economic trends including political decisions on commodity supplies and inventory. Domestic price pressures reflect US economic and construction demand cycles and are expected to begin rising slowly but steadily later this year.
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