Notes from Jim Haughey

May 17 2007 7:02AM | Permalink | Email this | Comments (0) |
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By Jim Haughey

Although construction is a largely domestic market, foreign trade trends are now having a significant impact on the construction market, creating demand for construction services while the domestic economy is depressed but this is at the cost of boosting prices for construction materials. The trade deficit just announced for March was the highest in six months. However, this is off trend. The trade deficit will decline 2-4% this year which will boost GDP 0.2-0.3% and generate additional spaced and facility demand. The trade deficit had a neutral impact on GDP in 2006 but was a responsible for depressing GDP growth an average of 0.7% from 2000 to 2005.

The improving trade deficit results from reduced imports during a period of slow economic growth and from the continuing depreciation of the purchasing power of the $US outside the US. The exchange value of the dollar has declined 18% in the last six years, including a 3% decline over the last year. A similar decline is expected this year. A weaker dollar makes imports more expensive.

The table shows three construction products where the domestic supply is substantially imported and import price inflation exceeds the price inflation faced by buyers in the US market, even though the volume of imports is declining.