The construction materials price index declined 0.6% in July after rising 1.6% over the previous two months. The price changes in the last few months are just short term noise. Small monthly gains or losses are expected for a few more months before a sustained price rise begins. The major price declines in July were 9.0% for diesel fuel, 1.9% for structural steel and 0.5% for ready-mix concrete. Softwood lumber jumped 6.7% and aluminum increased 4.6%. The spike in lumber prices is inconsistent with the trend in the framing lumber index reported by Random Lengths and could be revised or reversed. The July drop in diesel fuel prices will be substantially, possibly totally reversed in August. Both crude oil and diesel prices in early August were above the highest level reached in June.

The expected resumption of rising construction materials costs was previewed in July with the 4.0% rise in plastic resin prices adjusting to the doubling of crude oil prices earlier this year. This has not yet reached pricing for construction plastics which fell 0.2% in July. Steel scrap prices jumped 20% in July. Monthly changes on this scale are frequent. But the recent rise in machinery and vehicle production worldwide is likely to keep scrap prices on an upward trend. Iron ore prices fell 8.3% after negotiations between major suppliers and buyers but it is not likely real acquisition prices fell this much in this secretive market.

US construction supplies production is declining faster than construction activity, signaling that aggressive inventory reduction is underway. This will contribute to weak pricing well into the year.

Price trends vary widely by region depending on the level and mix of construction work in each market. Price level and trend information for more than 300 markets is available from RSMeans.

Construction Materials Inflation – July 2009

Source: Producer Price Index, Bureau of Labor Statistics,
US Department of Labor, Federal Reserve Board, Census Bureau