Vol. 3, No.33 August 11-15, 2003
The Data DIGest
Ken Simonson, Chief Economist, Associated General Contractors of America
Phone: 703-837-5313 Fax: 703-837-5407
simonsonk@agc.org

Bevy Of Brightening Economic Bulletins Outshines Blackout

Industrial production at factories, utilities, and mines climbed 0.5% in July, the Federal Reserve Board reported today. The Fed noted, “The output at utilities climbed 3.9%, as the weather turned warm in July after an unusually cool June.” Output in manufacturing rose for the third straight month in July, by 0.2%, following increases of 0.3% in June and 0.2% in May. The Fed listed increases in the output of construction machinery along with farm equipment and office equipment as contributing to a rise in the index for industrial and other equipment. The index for construction supplies rose 0.2% after being unchanged in June (initially estimated as a drop of 0.1%). Compared to July 2002, this index is down 2.6%.

Manufacturing capacity utilization crept up for the third time to 72.8%, but remains below the year-ago level of 74.3% and far short of the 30-year average of 80.2%. Without a combination of rising current output and relatively high capacity utilization, new factory construction is not assured.

Yesterday’s massive power failure in the Northeast showed how vulnerable the nation’s power systems are to both accidental and intentional breakdowns. However, neither the blackouts nor the surge in last month’s utility production points to an early upturn in power-plant construction. The recent completion of construction at numerous power plants begun in the late 1990s has boosted utility capacity by 5.7% in the past year, the Fed report showed.

The consumer price index (CPI) for all urban consumers rose a seasonally adjusted 0.2% in July, matching the June increase, the Bureau of Labor Statistics (BLS) reported this morning. The increase since July 2002 amounts to 2.1%. The “core” index, setting aside food and energy costs, also rose 0.2% for the month and only 1.5% over the past 12 months. A further decomposition of these numbers by Mark Vitner of Wachovia Bank shows that core goods prices have declined for 21 straight months, while core services prices have continuously risen at an annual rate of more than 2%.

Sales of retail and food services establishments rose a seasonally adjusted 1.4% in July, the Census Bureau reported Wednesday, following a 0.9% increase in June. For the 12-month period sales are up 5.6%, showing consumption is remaining brisk, particularly after taking into account the falling prices for many goods.

Real (inflation-adjusted) earnings slipped 0.1% from June to July, BLS reported today, as “a 0.3% increase in average hourly earnings was more than offset by a 0.3% decrease in average weekly hours and a 0.1% rise in the CPI for urban wage earners and clerical workers.” Average weekly earnings overall and in construction have risen 2.5% over the past year before inflation and 0.5% in real terms. Hourly earnings in construction averaged $19.01 in July, up 2.2% from July 2002.

The producer price index (PPI) for finished goods moderated to a seasonally adjusted 0.1% increase in July after spiking 0.5% in June and falling 0.3% in May. Ignoring volatile food and energy prices, the core index was up 0.2% in July after a 0.1% drop in June and a 0.1% increase in May. Over the past 12 months, the full index is up 3% but the core index has risen only 0.2%. Among intermediate-goods indexes, the index for materials and components for construction was up 0.3% for the month and 1.3% for the 12-month period. BLS noted, “Softwood lumber prices moved up 4.6%, following a 0.6% increase in the prior month. The indexes for gypsum products, concrete products, and architectural coatings turned up, after falling in June. Prices for plywood, treated wood, and millwork advanced more than they did in the previous month. By contrast, the nonferrous wire and cable index fell 0.7% in July, compared with a 1.3% rise in the preceding month. Prices for fabricated structural metal products also turned down in June. The indexes for plastic construction products, steel mill products, paving mixtures and blocks, and asphalt felts and coatings decreased at a quicker pace than they did a month earlier.” Among crude-materials indexes, the index for construction slumped 0.4% for the month and 2.3% from July 2002.

Combined sales of manufacturers, wholesalers and retailers (except semiconductor manufacturers) jumped by a seasonally adjusted 1.1% in June after rising 0.2% in May, Census reported Wednesday. With reports on manufacturing output and retail sales for July showing even more growth, this combined number should be still higher for July. Combined sales are up by 3.1% from June 2002. The combined inventory/sales ratio was stable over the 12 months at 1.38.

The Federal Open Market Committee voted on Tuesday to keep short-term interest rate targets unchanged and signaled its intention to do so “for a considerable period.” Minutes of the June meeting released yesterday showed considerable sentiment for a ½-point cut instead of the ¼-point cut that was adopted then.

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