Jul 18 2007 5:54AM | Permalink | Email this | Comments (0) |
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Construction materials production increased 1.0% in June, the fourth consecutive monthly increase. Production is still 2% below peak production in April 2006 but 2% above the low point in November, 2006. Total factory production increased 0.7% last month so construction materials are one of the key growth markets. By contrast, Construction spending fell about 6% in the five months through May, after subtracting estimated inflation from the Census bureau estimates.

So where are all of the building materials going? Some probably went to rebuild inventories with improving sales prospects. Some probably slipped into Canada and Mexico where construction activity is rising. But these can not explain the big gap between jobsite spending and materials production. At least one of these estimates has to be wrong and will later be revised substantially.

A recent post noted that construction employment was steady while construction spending was declining. While many believe that the employment numbers are overestimated, this is now the second piece of evidence suggesting that the construction spending estimates may be too low. The Census survey process is unavoidably a little slow catching a change in direction in a market.

If the current spending estimates are revised up, it is not likely to be in new housing. The more likely candidates are residential remodeling where substantial revisions are frequent or one or more of the largely private capital goods markets, such as transportation communication or manufacturing, where there has recently been a surge in spending.