Construction MMI Up, Construction Spending Unexpectedly Falls

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U.S. construction spending unexpectedly fell in December as investment in private projects rose marginally and public outlays tumbled, which could have an impact on the economic growth estimate for the fourth quarter.

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The Commerce Department said on Wednesday that construction spending slipped 0.2% to $1.18 trillion. Construction spending in November increased by an unrevised 0.9%.

Economists polled by Reuters had forecast construction spending gaining 0.2% in December.

Construction spending still increased 4.5% in 2016, but the rate of increase was less than half of its 10.6% surge in 2015. The government reported last week that GDP increased at a 1.9%  annualized rate in the fourth quarter after accelerating at a 3.5% pace in the July-September period.

Our Construction MMI increased nearly 3% in February, as prices of both steel and aluminum products increased and buoyed the index. 73% Of construction firms said they expect to expand their payroll this year, according to survey results released Tuesday by the Associated General Contractors of America and Sage Construction and Real Estate.

Increased prices and general optimism about the infrastructure plans of the incoming Trump administration are contributing the overall bullish environment for construction metals. The steel sector, in particular, is suddenly a hot investment sector. Michael Tomera, head of PricewaterhouseCoopers‘ U.S. steel analysis arm, recently told me in an interview that, “There are momentum drivers here. If you look at liquidity, market conditions, infrastructure development in the U.S. with the new infrastructure and trade plans, all of those are good indicators for the metals industries and growth going from 2016 into 2017.”

Equipment manufacturers are also investing heavily in new technologies to apply to construction site safety, inspections and other fields. Equipment manufacturer Caterpillar, Inc. has invested in San Francisco drone tech startup Airware. Rather than make its own unmanned aerial vehicles, Airware has focused its efforts around providing software and services that help large enterprises use drones throughout their operations. Airware’s cloud-based software helps companies plan flights, automate them as much as possible, then analyze all the data their drones collect.

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Drones have been used on construction sites for the last five to ten years, but the fact that a key player like Cat is investing in the technology is a sign of a maturing market. Site technology doesn’t directly affect construction metal prices but it is part of a trend in lean project delivery that has delivered better results, and better projects, for general contractors and construction managers over the last decade. In other words, the increase in construction projects in the U.S. is directly proportional to better project management.

Actual Construction Metal Prices

Chinese rebar increased 3.2% from $501.01 a metric ton in January to $517.16 this month. U.S. Shredded scrap increased 5.2% from $286/mt in January to $301/mt.

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