Lumber, metal and gypsum lead construction materials decline

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Reed Construction Data chief economist Jim Haughey reports the economic slowdown caused another decline in the construction materials price index with a 1.1% fall in July. The largest declines were for steel, copper, lumber and gypsum products.

Most construction items experienced price declines in July. The only significant price increase from June was a 1.2% rise in construction equipment rental rates. This is more likely random than a new trend and may be due to the impact of the Gulf oil cleanup since oilfield equipment is included in the index.

Underlying economic trends still suggest that construction materials prices will rise much faster than overall inflation through 2011 but the June-July price declines were expected after the end of the tax credit boost to the housing market.

Pricing will be weak for several more months with further small declines likely. However, the summer price reprieve for construction materials will be brief. The rapidly expanding world economy is raising all commodity prices and the depreciating $US dollar is further adding to US commodity prices. The price index for construction materials will rise as much as 6% this year while overall inflation remains near 1%.

The most ominous item in the July price report was the 7.5% rise in iron ore prices after a year of stable prices. Ore prices have doubled outside the US in recent months as suppliers moved from annual price negotiations to pricing based on current market conditions. The isolated US market has felt little impact so far from this pricing change but the impact will be felt quickly when a stronger US economy needs much more imported steel.

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