Construction loadings flat in June

Movements of construction goods weakened in May and June. Loadings for May were revised lower, from a small gain to a drop of 2.4%. June loadings remained flat at 9.111 million. The year-over-year growth has slowed noticeably in the last two months with a gain of just 2.6% in June. Aside from a two month stall out in late 2011, the last two months have shown the weakest year-over-year growth since mid-2010. We expect growth to improve modestly and finish the year above 5%.

Recent history
Loadings dropped throughout 2008 and 2009 and didn’t hit bottom until 2009Q4. It rebounded strongly starting in Q2 of 2010. Loadings fell 4.4% in 2007, 8.4% in 2008 and 19.6% in 2009. The decline in 2009 was shocking because this sector had already been through 2 years of significant declines. On an annual basis 2010 loadings were only up 1.1%, but 2011 saw a gain of 5.5%. Until the last 2 months, volumes had been trending higher since November 2011. After jumping 3.1% in Q1, loadings were essentially flat in Q2.

The outlook is relatively unchanged and growth will remain solid during this recovery. We expect growth to remain on track for the rest of 2012 with annual growth of 5.3%. The growth is strong but volumes will remain well below the last peak. We look for growth to remain near 5% in 2013 and 2014, growing 4.2% and 5.1%, respectively.

Our outlook for construction goods is essentially unchanged this month, moving just slightly lower for 2012 and 2013. We expect to get ~5% growth from 2011 through 2014. That is a good run of strong growth. Housing continues to show halting gains and the infrastructure components remain stable. Monthly construction spending data shows that housing is picking up, as is some business construction, but public infrastructure spending remains weak.

After a period of stagnation during the middle of 2011, growth has resumed since the end of the year. Aside from a quick 2-month period of no growth, year-over-year growth had been very strong since turning positive in the middle of 2010. The current weakness in loadings is not expected to last into Q3. Despite the relatively weak outlook for so many construction sectors (housing, infrastructure, etc.), it is coming off of such a historic low that the growth looks quite positive.

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