Construction materials wholesalers held a record level of surplus inventory of lumber and other construction materials in December according to the Census Bureau’s latest wholesale trade report. At 1.48, the ratio of month end inventory to previous months’ sales was the highest reported in the last 10 years.

The quick consequence will be weaker materials pricing at least through the winter. Note that this wholesale category does not include metals or electrical/mechanical products where current inventory levels are normal to slightly low. Steel prices are now rising. And the prices of imported materials continue to be edged up by the continuing decline in the value of the $US.

Construction materials wholesalers have operated for extended periods in recent years at an inventory/sales ratio in the 1.15-1.20 range, suggesting that this is the target ratio. By this measure, inventories have been excessive for a year and an half.

As elsewhere in the economy, sales fell sharply for materials wholesalers in December. Sales fell 3.8% from November after seasonal adjustment. The inventory sales ratio rose from 1.41 to 1.48. The ratio had averaged 1.35 over the previous year.

More accumulation of unwanted inventories is likely in January and possibly for a few more months. Early January economic reports confirm that the economy continued to weaken. Credit this to persistently high energy prices and the lingering restraint from the collapse of the subprime mortgage market. Both consumer and business spending appeared to have declined last month. Contractors laid off 45,000 workers confirming another decline in residential construction. Reed Construction Data reported a 10.1% drop the value of nonresidential building construction starts in January.