The construction materials market perked up in November reversing a brief soft spot in October. All of the November market measures were positive. Orders, production, unfilled orders and shipments increased slightly Manufacturers’ inventory and the inventory/sales ratio continued to fall. The price index for construction materials rose 0.6%. Most of this was a pass through of higher International commodity prices, especially energy and metals. Significantly, it is no longer obvious that prices are being depressed by excess inventory and capacity. Nonetheless, manufacturers hold about three days more inventory than historical trends suggest they are now targeting.

The November data suggest that a return to sustained sales expansion is still a few months ahead. Consrtuction spending is projected to resume growing in the spring and materials manufacturers will be positioned with balanced inventories to expand production in pace with rising construction activity.

Construction Materials
Percent Change in… 
                        1 month    3 months    12 months    3 years
Production        1.6            -1.3            -12.6            -22.6
Prices               0.6             0               -2.3               8.1
Orders               0.9            1.2             -4                -12.9
Shipments         0.3             0.2            -7.7             -14.5
Unfilled Orders   1.1             2.9            -9.6                7.1
Inventory           -0.2            -1.4            -15.6            -15.3
Inv/Sales           -0.5            -1.6            -8.5              -0.9
Sources: US Dept. of Labor, US Dept. of Commerce, Federal Reserve Board

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, especially for motor vehicles, causes too much material sales to be assigned to construction. Stability in construction materials production and shipments will probably not happen until the fall, possibly even the winter.