Construction MMI: Infrastructure Construction Remains Robust, Private Projects Feeling Recession Pains

The Construction MMI (Monthly Metals Index) narrowly missed trading flat. Overall, the index remained sideways, with just a minuscule drop of 0.13%. In the face of recent construction news, the index proved much less volatile than in the past three months.
All three bar fuel surcharges within the index (Weekly Gulf Coast, Weekly Rocky Mountain, and Weekly Midwest) traded flat, as did iron ore. Meanwhile, H-beam steel, steel rebar, and many other forms of steel went up. However, the movement was slower than in the previous three months, and experts believe steel prices could be nearing their peak. The aluminum parts of the index trended upward month-over-month, which also helped keep the index fairly stable.
Current trends aside, industry professionals are more concerned about future trends. Indeed, it seems that the U.S. is heading toward an imminent recession. This leaves many construction professionals wondering how the changing economy will impact demand. While recessions typically deflate materials prices, lower demand also means there might not be as much construction going on. That said, infrastructure building continues to be supported by the Mega Grant Program, particularly for transportation. Currently, the construction market in the most danger is the home construction industry.
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Impact of a Recession on Housing Construction
As the economy slows down, people spend less, decreasing the demand for new homes. People are also more likely to stay put in their current living situation to save money. And with fewer people moving, fewer people are likely to construct new homes. Those following construction news closely know this could contribute to the housing market slowing down significantly.
The number of housing units currently under construction suggests that housing construction will still increase and expand in the long-term. However, if the economy takes a downturn, short-term building will likely stagnate and could even reverse.
Another indicator to note is mortgage application submissions. Towards the end of 2022, mortgage applications saw a fairly sharp downturn as interest rates from the hawkish Fed continued to climb. However, even now with the Fed reducing interest rate hikes, mortgage applications are still slowing. In fact, another sharp drop in mortgage applications occurred at the end of March.
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This latest construction news comes as a warning shot to contractors. However, the negative impacts a recession has on the housing market are not always straightforward. It depends on a variety of factors, including the severity and duration of the recession. One blessing in disguise is that the over-inflated housing market seen post-COVID is starting to deflate, thus making homes more affordable. However, buyers of materials that go into home construction should remain wary, as interest rates are still high and consumers are draining their savings.
Banking Insecurities Could Impact Construction Markets
Recent bank failures in the U.S. have caused a ripple effect throughout the economy, including the construction market. In fact, the growing uncertainty in the financial markets has led to concerns about the spillover effect on construction activity overall. The collapse of Silicon Valley Bank and Signature Bank forced contractors to look more closely at their financial strategies. To avoid disruptions, contractors are advised to follow critical steps, such as diversifying their banking relationships and maintaining a strong cash position.
The other problem stemming from the recent bank failures is that smaller banks are now tightening up their guidelines for lending. This makes obtaining loans for construction projects more difficult. In fact, the Dodge Momentum index, a non-residential building planning benchmark, dropped 8.6% last month in the wake of SVB and SB failures. This represents its most significant drop since 2020.
Ultimately, even if further bank failures don’t come to pass anytime soon, banks tightening their lending guidelines will have an immediate impact on construction markets.
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Construction News: Notable Price Trends
- Chinese iron ore PB fines traded flat, remaining at $81 per dry metric ton.
- Chinese h-beam steel rose by 6.59%, bringing prices to $634.49 per metric ton.
- Chinese aluminum bar prices inched up 2.65%, bringing prices to $2,953.46 per metric ton.
- Finally, Chinese steel rebar went up in price by 3.02%. Prices sat at $648.77 per metric ton on April 1.
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