Monthly Construction MMI® Tanks as Spending Suddenly Drops

by on

The monthly Construction MMI® registered a value of 87 in October, a decrease of 5.4% from 92 in September.

Construction_Chart_October-2014_FNL

Outlays for US construction projects fell 0.8% in August to a seasonally adjusted annual rate of $961 billion, according to the US Department of Commerce. Economists polled by MarketWatch had expected a 0.5% increase. Looking at private outlays, spending fell 1.4% for nonresidential projects and dropped 0.1% for residential projects. For overall public construction projects, spending fell 0.9%. In addition, July’s rise was revised lower to a 1.2% rise from an initially reported 1.8% gain.

Paradoxically, construction employers added 16,000 jobs and the sector’s unemployment rate fell to 7%, the lowest rate for September in years, according to an analysis released by the Associated General Contractors of America. Association officials said the construction employment gains come as more firms report having a hard time finding enough qualified workers to fill available positions. So, spending is down and hiring is up?

Can’t Blame It on Lean Practices

Lean design and delivery have certainly eliminated waste in the US construction industry. Construction companies are going to continue to look for ways to spend less by measuring – usually using building information modeling – twice and cutting once. While a certain percentage of spending can be credited to lean practices going mainstream… this drop is still uncharacteristic of a recovering market, especially the revision in July’s spending numbers. Knocking July down by 6 percentage points calls into question the reported numbers for August, as well.

Construction costs increased for the 32nd consecutive month in September, IHS and the Procurement Executives Group (PEG) reported last month. IHS and PEG’s Engineering and Construction Cost Index (ECCI) is based upon data independently obtained and compiled by IHS from procurement executives representing leading engineering, procurement, and construction firms. Materials and labor both increased again. The ECCI registered a 57.8% in September, up from 53% in August and, narrowly, the highest reading since March 2013. If costs are up so much the drop in spending can only mean less projects and less project spending.

IHSPEGSeptember

Source: IHS/PEG ECCI

Since the ECCI is based on data independently obtained and compiled by IHS from procurement executives, like our MMI report, it cannot be fooled by less wasteful practices. Services billed for and not yet paid or other outliers that can skew other indicators whose measurements are not of actual prices and actual purchases. Prices for both labor, still in a shortage, and materials are going up, yet construction’s recovery remains uneven at best with negative growth in all major sectors.

Recovery?

If construction metals markets are to turn around, it may take a turnaround in the developing world rather than a jumpstart from the US.

 

* Get the complete prices every day on the MetalMiner IndX℠

The price of Chinese rebar fell 8.1% to $482.19 per metric ton. At $2,986 per metric ton, European 1050 aluminum was down 5.0% for the month. A 5.0% drop over the past month left Chinese H-beam steel at $500.11 per metric ton. The weekly US Rocky Mountain bar fuel surcharge ended the month at $0.52 per mile, down from $0.52. The weekly US Midwest bar fuel surcharge finished the month at $0.50 per mile after dropping 2.3%. With a 1.4% decline, the weekly US Gulf Coast bar fuel surcharge closed the month at $0.49 per mile.

At a price of $158.02 per dry metric ton, the Chinese low price of 62% Australian iron ore fines did not budge the entire month. Last month was consistent for Chinese aluminum bar, which did not move from $2,313 per metric ton. US shredded scrap traded sideways last month, staying around $381.00 per short ton.

The Construction MMI® collects and weights 9 metal price points used within the construction industry to provide a unique view into construction industry price trends over a 30-day period. For more information on the Construction MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

{Comments Off on Monthly Construction MMI® Tanks as Spending Suddenly Drops Comments Off on Monthly Construction MMI® Tanks as Spending Suddenly Drops}