The Industrial Production Index for construction materials fell 2.2% in February. The decline since production peaked at the top of the housing boom in January 2006 is 24.5%. Most of the decline has occurred since last August at the peak of the nonresidential construction boom. A 7% further decline is expected into the summer followed by a 17% rebound by the end of 2010 when materials production will still be 19% below the peak early 2006 level.

The initial production declines into early 2008 were for materials produced for the residential market as well as much smaller declines for materials, such as concrete, used in all construction markets. Production declines have accelerated in the last six months for both widely used materials and residential materials and production declines began for materials used primarily in nonresidential building construction. The expected decline into the summer will include materials for all types of construction. The pace of decline will ebb for residential materials but accelerate further for materials specialized to nonresidential building construction.

Late in 2009 and throughout 2010 the production rebound will initially be for residential materials. While housing will remain depressed, a double digit rise in housing starts is expected as soon as early summer. Production declines will accelerate for materials for nonresidential buildings for most, perhaps all, of 2009. The decline will be steeper in 2009 for materials specialized to commercial buildings and relatively modest for materials specialized to institutional buildings. This trend will reverse in 2010.

Materials production for heavy projects has so far declined very little but more serious decline is ahead in the next few months before the economic stimulus funds and the new “buy American “ rules stop the slide, probably at the end of the summer.

Industrial Production Index Construction Materials

Source: Federal Reserve Board; Forecast: Reed Construction Data