Posted on July - 11 - 2010
Construction materials market recovery stalls
The recovery in the construction materials market stalled in May. Materials production rose 0.8% but materials prices increased 0.7%. Shipments were unchanged and orders declined slightly. This stall matches the 0.2% drop in May construction spending and the abrupt post-tax credit pullback in new home construction. The stagnant outlook for construction spending in the next few months suggests that materials orders production and sales are likely to be approximately unchanged during the summer except for price increases. However, the pickup in market volume earlier in the year will be held.
While inventories and the inventory/sales ratio rose in May, inventories remain reasonably in balance relative to sales. The ratio is only slightly above manufacturers’ planning targets at 1.30 months which is the lowest in three years.
The construction spending forecast expects resumed growth by the end of summer. Materials shipments will follow the same trend since materials inventories are approximately in balance.
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Construction Materials |
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| Percent Change in… | ||||
| 1 month | 3 months | 12 months | 3 years | |
| Production | 0.8 | 6.2 | 3.9 | -20.7 |
| Prices | 0.7 | 3.1 | 6.3 | 8.9 |
| Orders | -1.0 | 3.3 | 8.8 | -14.1 |
| Shipments | 0.0 | 5.1 | 8.0 | -12.8 |
| Unfilled Orders | -0.4 | 1.6 | 5.9 | 10.6 |
| Inventory | 0.6 | 2.5 | -3.5 | -12.2 |
| Inv/Sales | 0.6 | -2.4 | -10.6 | 0.6 |
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Sources: US Dept. of Labor, US Dept. of Commerce, Federal Reserve Board |
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CAUTION: The Census Bureau indexes for construction materials are overstating the recent improvement in the market. The indexes are constructed by dividing the use of materials between construction, manufacturing and other end markets. This allocation uses the historical shares of purchases of steel, plastics, glass and other materials by each end market. The Census Bureau has no specific information on the share of steel production shipped to the construction market. As a result, the abrupt rise in manufacturing activity beginning in the late spring 2009, especially for motor vehicles, causes too much material sales to be assigned to construction.
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