Wednesday, May 04, 2011

Martin Marietta Materials: Residential end-use market volume grew 15% YoY

by Bill McBride on 5/04/2011 05:53:00 PM

Martin Marietta Materials, Inc. released their Q1 results today, and this statement caught the eye of several analysts:

"The residential end-use market volume grew 15% compared with the prior-year quarter, reflecting increased multi-family construction activity."
From the Q&A: (ht Brian)
Analyst: In the press release you talked about your residential business being up 15% on multi-family construction. I'm surprised that that's skewing the number that much given the size of the market. What exactly is going on?

MLM CEO: Well, I guess the big thing I would say to you is it's been a market that has been dead for so long that when any degree of activity comes back to it, it tends to have a remarkable swing in it. ... [W]hen we step back and take a look at what's going on broadly in multi-family ... My recollection is that we were looking in February last year at around 400 different permits that had been handed out for multi-family construction [in portions of Texas] - and during the same time this year, over 2,000.
This reinforces several themes we've been discussing ...

• There will be a record (or near record) low number of housing units completed this year, and there will be a record low number of multi-family completions this year.

• With falling vacancy rates and rising rents, the number of multi-family starts will pick up sharply (but still be well below normal). It takes over a year on average to complete a multi-family building, so these units will start to be delivered in 2012 - but the impact on construction starts this year. As the MLM CEO said: "a market that has been dead for so long ... any degree of activity ... tends to have a remarkable swing".

• This pickup will lead to a positive contribution to GDP and payroll jobs for construction in 2011, the first positive contribution for either since 2005. As ADP noted this morning: "In April, employment in the construction industry increased 9,000, only the second monthly increase since June 2007. Since December 2010, however, construction employment has, on balance, risen, suggesting that finally employment in this sector has bottomed out. The total decrease in construction employment since its peak in January 2007 is 2,115,000." Nine thousand jobs added compared to over 2 million jobs lost is just a drop in the bucket, but it is a start ...