Construction materials shipments increased 0.4% in the three months through February Since production fell 0.8% over the same period, orders were met by reducing inventory. The inventory/sales ratio fell from 1.52 to 1.34 over the last year. The current level is only slightly above inventory reserve targeted by manufacturers, says Reed Construction Data chief economist Jim Haughey.
Construction materials shipments increased 0.4% in the three months through February Since production fell 0.8% over the same period, orders were met by reducing inventory. The inventory/sales ratio fell from 1.52 to 1.34 over the last year. The current level is only slightly above inventory reserve targeted by manufacturers. Materials suppliers operated with an inventory/sales ratio as low a 1.2 during the period of rapid market growth early in 2006 but quickly raised production to get back to a 1.30-1.35 inventory/ sales ratio.
Hence materials suppliers are set to raise production in line with the rising materials demand expected in the next few months. The early signs of a tightening market have already appeared. Gypsum and metal product suppliers have announced price increases and. The market price for framing lumber, according to Random Lengths, is up over 30% in early 2010 as lumber mills need as few months to respond to higher demand.
No significant rise in materials production is expected for several more months. While homebuilders increased recent orders, other contractors are still trimming orders.
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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Sources: US Dept. of Labor, US Dept. of Commerce, Federal Reserve Board