Infrastructure spending related to President Obama's stimulus package will not jump-start a broad-based upturn in building materials shipment volumes (Chart A) in the near term. In the first four months of 2009, public construction spending made up nearly 32% of total spending and will not expand to offset depressed residential construction activity and the expected downturn in private nonresidential construction.
The upturn in private nonresidential construction spending in March and April was temporary since market fundamentals, i.e., growing excess capacity of retail, industrial and office space, continue to weaken. That, combined with tighter lending requirements, will cause a downturn in private nonresidential construction spending. Depressed residential activity combined with decreasing private nonresidential construction activity will more than offset expanding public construction activity, resulting in lower total construction activity.
Inventory to sales ratios (Chart B) suggest that inventories at building materials suppliers and garden center stores are excessive, so retailers will satisfy sales (Chart C) by liquidating inventory. This implies weak freight volumes into distribution centers.
Inventory liquidation by retailers indicates weak freight volumes upstream in the supply chain through wholesalers and manufacturers. Slow inventory replenishment by retailers implies weak freight volumes from wholesalers to retailers as well as from manufacturers to retailers. Wholesalers' inventories are excessive as well, so building materials freight volumes to wholesalers' distribution centers from manufacturers will weaken in the near term.
The downturn in building materials output by producers is slowing, but the pressure on output remains on the downside in the near term. Lower output (Chart D) of final building materials products indicates lower freight volumes upstream in the supply chain of raw materials and intermediate products.
Commercial Motor Vehicle Consulting (CMVC) does not foresee a broad-based upturn in building materials freight volumes until inventories are balanced with sales throughout the supply chain. CMVC predicts a prolonged inventory correction, which will disrupt the flow of building materials freight volumes through the supply chain.
Commercial Motor Vehicle Consulting publishes the monthly newsletter Visibility of the Supply Chain for general freight carriers. To order a copy, contact Chris Brady of CMVC at [email protected] or 516-869-5954.