Notes from Jim Haughey

Jan 18 2007 1:12PM | Permalink | Email this | Comments (0) |
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By Jim Haughey

Building product manufacturers boosted their output marginally in December to accommodate the warm weather spike in jobsite activity. Similar December spikes have already been reported for construction jobs and hours as well as construction starts. We believe this was a temporary respite for suppliers. Decembers’ 0.2% rise in the production index for construction supplies follows four months of decline after production peaked last July. The current level of production appears to be a little high for the current level of construction spending. And there is still some surplus inventory in the supply chain. The surplus is not all held by manufacturers and distributors. Contractors who over-ordered have inventory that they are trying to sell. As every market downturn teaches us again, there is always more surplus inventory than suppliers thought was there when the slowdown began.

Materials production is down 2.4% so far and will fall about another 1% by late this year. The index is measured in units (tons, square feet, linear feet, etc.). The dollar decline is steeper, perhaps 4-5% so far. If this seems like a very small drop relative to the 205 plus drops in housing starts, remember that the drop in the production index is cushioned by cutting back imported suppliers before domestic production is reduced. This forecast results from combining the Reed Construction Data’s construction spending forecast with our assessment of the inventory situation.