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Winter Storms Drop Construction Materials Sales02/10/2011 by Jim Haughey
Job site shutdowns during the winter storms forced construction materials suppliers to cut production 0.8% in December in response to a 0.6% fall in sales. The weather worsened in January and has not returned to normal so far in February so the materials market will weaken further early in 2011. Expect a rebound in orders, production and sales when normal weather returns. Construction spending had begun to inch up before the winter storms and will resume growing when construction weather conditions are better.
Manufacturers’ inventory/sales ratio rose to 1.38. It had been as high as 1.59 early in 2009. About 1.30 is a comfortable operating level so production gains will be less than sales gains well in to 2011.
CAUTION: The Census Bureau indexes for construction materials are overstating the size of 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 strong rise in manufacturing activity 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