Posted on May - 19 - 2010
Construction Materials Volume Jumps in March
The construction materials market improved significantly in March after smaller, tentative gains earlier in 2010. Orders, production and shipments increased at double digit annual rates even after allowing for a steep price increase for commodities. Shipments rose at the same pace as materials prices. But there was likely a real gain in shipments volume since abrupt rises in commodities prices do not get instantly passed into selling prices. Materials inventories also increased raising manufacturers’ inventory/sales ratio. But the ratio remains within the normal range so no adverse impact on production is expected in the next few months.
The March improvement much outpaced the small gain in construction activity so it may be more due to inventory balancing than to higher demand. If so, volume gains will be smaller through the summer, with a brief pullback possible, until materials use on the job site begins sustained growth late this year. It is also, likely that the overlap of materials use with the now booming manufacturing sector contributed to the recent pickup in materials volume.
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Construction Materials |
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| Percent Change in… | ||||
| 1 month | 3 months | 12 months | 3 years | |
| Production | 2.3 | 3.6 | -0.2 | -23.2 |
| Prices | 1.3 | 2.6 | 4.7 | 9.1 |
| Orders | 2.7 | 5.4 | 9.6 | -10.8 |
| Shipments | 1.3 | 3.4 | 2.2 | -13.9 |
| Unfilled Orders | 2.9 | 4.5 | 6.9 | 10.3 |
| Inventory | 2.3 | 2.7 | -8.3 | -13.3 |
| Inv/Sales | 1 | -0.7 | -10.3 | 0.7 |
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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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