Vol. 3, No.29 July 16-21, 2003
The Data DIGest
Ken Simonson, Cheif Economist, Associated General Contractors of America
Phone: 703-837-5313 Fax: 703-837-5407
simonsonk@agc.org

Building permits, industrial production improve; budgets worsen

Building permits rose for the third straight month in June to 1,817,000, seasonally adjusted, their second-highest level ever and 4% above the June 2002 mark, the Census Bureau reported Thursday. Single-family permits hit a record, rising 5% from May’s revised total and nearly 9% from June 2002. Multi-unit permits slumped in June after soaring in May and are 9% below the year-ago figure. For the first six months of 2003, single-family permits are 6% ahead of the first half of 2002; multifamily permits are up by 1%.

Interest rates for 15- and 30-year fixed mortgages moved up another 0.15% last week to a 2-1/2 month high, Freddie Mac reported Thursday. However, rates are still nearly 1% below last July’s rates, and home builders’ sales expectations for the next six months hit their highest level in more than two years, according to National Assn. of Home Builders’ monthly housing market index for July, released Wednesday.

Industrial production for manufacturers, seasonally adjusted, rose 0.4% in June following a revised 0.1% increase in May, the Federal Reserve reported Wednesday. That was the first back-to-back rise since August but still left output 1% below the June 2002 level. Output of construction supplies slipped 0.1% after rising 0.3% in May; the June figure is 3.3% below output in June 2002. Manufacturing capacity utilization also edged up for the second month in a row but only by 0.2% to 72.8% of capacity, still below the June 2002 rate of 74.1% and far below the 1972-2002 average of 80.2%.

The consumer price index for all urban consumers (CPI-U), seasonally adjusted, rose 0.2% in June, the Bureau of Labor Statistics (BLS) reported Wednesday. The overall CPI-U was up 2.1% over the past 12 months. The “core” rate, which omits volatile energy and food price changes, was flat for the month and up just 1.5% for the 12-month period.

Real (inflation-adjusted) earnings of production workers were nearly unchanged for the month and year, BLS reported Wednesday. Average weekly earnings of construction workers climbed 2.8% over the past 12 months but only 0.7% after accounting for inflation. Average hourly earnings of construction workers were $18.89 in June 2003, up 2.8% from the $18.38 average in June 2002.

The Administration issued its Mid-Session Review, containing updated federal budget estimates, on Tuesday. The Administration has reduced its forecast of current-law Highway Trust Fund receipts by $500-$700 million for each year through fiscal 2008 compared to the budget released in February, with nearly all of the reduction showing up in the Highway Account. The Administration estimates that if lawmakers adopt its proposed changes (transferring to the Highway Account the 2.5 cents of gasohol tax receipts that now stay in the general fund and eliminating the installment payment option for the heavy vehicle use tax), the Highway Account would gain $1.2 billion in fiscal 2004 and about $850 million annually thereafter). Meanwhile, a House Appropriations Subcommittee has voted for a fiscal 2004 appropriations bill that would raise highway spending to $34.1 billion from $31.6 billion in fiscal 2003.

State and local budget problems are becoming more widespread. California today ends its third week without a state budget, forcing the government to halt a variety of payments. Today’s Los Angeles Timesreports that “The state halted payments of $380 million scheduled to be released last week [including] up to $230 million in payments to day-care centers.” In addition, “Community colleges cannot receive $209 million in state aid. School districts would not get about $200 million for special education programs. Cities and counties cannot collect $103 million in state gas tax money for local streets and roads. Vendors who provide goods and services for everything from state prisons to colleges and universities may go unpaid.” Wednesday’s USA Today reported, “In Michigan, legislators and the governor reached a deal Monday to resume work on half of road projects that had been delayed to save money.” The article also says, “The National Assn. of Counties in a survey earlier this year found that 72% of counties had budget problems. Of that number, more than a quarter were planning to reduce highway and street construction….Boone County, Mo….has put off new projects because of a drop in sales tax revenue…Norfolk, Neb….might have to delay some pubic works spending to make up for cuts in state aid.”

“Small Business During the Business Cycle” (www.sba.gov/advo/research/rs231tot.pdf), a report by the economic research firm Joel Popkin and Co. for the Office of Advocacy of the Small Business Administration that was posted last Monday, “attempts to isolate differences in the relative movement of small businesses and large businesses due to cyclical forces in the economy….Some of the most cyclically sensitive industries, such as construction, are made up predominantly of small businesses….In construction, small firms tend to be more negatively impacted by downturns than large firms, but do slightly better than large firms during an expansion.”

The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics.

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