Industrial Insight

Construction | March 17, 2017

Construction MMI Flat as US Spending Falters in January

by Jeff Yoders on MARCH 7, 2017
Style:Market AnalysisCategory:Ferrous Metals, Metal Prices, Premium

U.S. construction spending unexpectedly fell in January as the biggest drop in public outlays since 2002 offset gains in investment in private projects, pointing to moderate economic growth in the first quarter.

The Commerce Department said on Wednesday that construction spending declined 1% to $1.18 trillion. Construction spending in December was revised to show a 0.1% increase rather than the previously reported 0.2% decline.

Economists polled by Reuters had forecast construction spending gaining 0.6% in January rather than the loss that was booked.

Construction MMI

Our Construction MMI held steady this month despite the falling spending. The component metals of the sub-index still have bulls behind them, despite the flat performance. Steel construction materials such as rebar and h-beams are still posting big gains but scrap and others saw a loss.

It’s almost as if construction products are still in demand, particularly in China’s construction sector, even as U.S. construction experiences a pullback.

In January, public construction spending in the U.S. tumbled 5%, the largest drop since March 2002. That followed a 1.4% decline in December. Public construction spending has now decreased for three straight months.

Outlays on state and local government construction projects dropped 4.8%, also the biggest drop since March 2002. This could be an ominous sign for construction spending this year, provided, of course, that a major infrastructure plan, such as the $1 trillion plan President Trump continues to promise, doesn’t pass quickly enough to boost construction prices. The longer that it takes to pass an infrastructure plan, the less likely it is to boost contractors’ bottom lines this year.

That boost is needed for our aging infrastructure, too. Spending on state and local government construction projects has now dropped for three straight months. Federal government construction spending plummeted 7.4% in January, the largest decline since May 2014. The drop snapped three consecutive months of gains.

Spending on private construction projects actually rose 0.2% in January, but could not make up for the loses in government projects.

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About author

I'm the executive vice president for a steel casting trade association, the Steel Founders' Society of America. I've got a crazy wife, five crazy children, three crazy people that married into the family, and two crazy fun little grandsons.

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