Notes from Jim Haughey

Jan 10 2007 12:57PM | Permalink | Email this | Comments (0) |
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By Jim Haughey

Construction materials production has been stalled by the combination of lower consumption by materials buyers and the need to absorb the overproduction of materials in mid-2006. Eventually, both of these restraints on production and sales will be relaxed. Materials suppliers will be doing better at the end of the year but production and sales will still fall well short of the peak period in late 2005/early 2006, except for materials with little use in residential markets.

That turnabout process has already begun for the lowered materials demand restraint as contractors work schedules picked up in December. However, some of the added job site activity in December was due to unseasonably warm weather so no significant relaxation of the demand constraint should be expected through the winter.

It is always hard to predict when an inventory surplus will be used up. The production index for construction materials stayed at the elevated late 2005 level through August, five months after the volume of construction activity began to decline. Allowing two months for materials suppliers to catch up after a period of strong demand growth, accumulated overproduction was as high as 5% through November. Our best estimate is that materials production will dip 1-2% below the November level — on top the 3% decline that has already occurred — through the winter to absorb the excess materials inventory by the end of the winter.