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Office Market Remains Dim But Outlook Brightens

Vol. 4, No. 4 January 20 - 23, 2004
The Data DIGest
Ken Simonson, Cheif Economist, Associated General Contractors of America
Phone: 703-837-5313 Fax: 703-837-5407
simonsonk@agc.org

The national office-vacancy rate "is 17%, just a couple of points short of the 1992 record, accourding to Reis, Inc., a New York real-estate research firm," the Wall Street Journal reported Friday (p. A1).The vacancy rate rose eight points from 2001 to 2002. "And some markets are as bad or worse. San Jose was 17% vacant then and 24% today. Dallas 25% then, 25% now. Atlanta, 19.5% then, 19.8% now. Boston, Austin, and Chicago are all worse today. Parts of Silicon Valley are a ghost town. Denver's telecom corridor is a desert of empty parking lots." Although the main focus of the article is the much stronger condition of office developers today, it adds, "they're still looking at a grim 2004 with only tepid job growth expected."

Thursday the Senate passed the fiscal year 2004 (FY04) omnibus appropriations bill, which provides funding through September 30 for those Federal agencies whose individual spending measures had not already been approved, including the Department of Transportation. The measure provides record highway funding of $33.6 billion, $3.4 billion for airport construction and $7.3 billion for transit. The federal transportation programs have been operating at their FY03 funding levels since the new fiscal year began October 1. The highway program's FY03 funding was $31.6 billion; therefore, the measure will provide a $2 billion increase as soon as the President signs it, which is expected within days.

December's North American retail sales of construction equipment by CNH posted the largest year-to-year increase for any month in 2003, Merrill Lynch analyst Steve Haggerty noted Thursday. "Very strong December data is consistent with the positive dealer sentiment and the comments by Komatsu and Volvo we found during our visit to the annual meeting of the Associated Equipment Distributors January 8-9."

New residential construction starts in 2003 reached a 25-year high of 1,848,400, up 8% from 2002, the Census Bureau reported Wednesday. The good news should continue into 2004, as building permits, a reliable indicator of near-term homebuilding, rose a seasonally adjusted 3% in December. For the month, single-family permits rose 3%, 2-4 unit permits (about 4% of the total market) fell 16%, and 5+ unit permits rose 11%. For 2003 as a whole, permits rose 6% from 2002, with the three categories changing by 8%, 11%, and -2%.

Home builders and remodelers remain optimistic, the National Assn. of Home Builders (NAHB) reported. NAHB's Housing Market Index, a composite of three indexes of buyer sentiment and home builders' expectations for the next six months, fell two points to 68 in January-still well ahead of its 64 reading at the start of 2003. "Coming off the best year in history for single-family home sales and production, builders are set for another very busy year in 2004," NAHB President Kent Conine said Tuesday. "There's plenty of momentum in this marketplace." Professional remodelers posted higher year-end numbers in the final quarter of 2003 than in the fourth quarter of 2001 or 2002, and most industry professionals expect business to stay strong in 2004, according to the results of the NAHB's Remodeling Market Index. "We anticipate that when the final numbers are tallied, the 2003 remodeling market will close at $182 billion, surpassing last year's $173 billion by about five percent," NAHB Remodelors Council Chairman Doug Sutton said Wednesday. "It has been a banner year for the remodeling industry as a whole, and we feel very good about our businesses as we move into the new year." In another positive sign, home mortgage rates slipped again, Freddie Mac reported Wednesday.

Union membership dropped by 369,000 in 2003, from 13.3% of all wage and salary workers in 2002 to 12.9%, the lowest percentage in the 20-year history of the series, the Bureau of Labor Statistics (BLS) reported Wednesday. Among major private industries, construction had the second-highest rate of unionization (16%, down from 16.7% in 2002) after transportation (26.2%). Among occupations, the rate was 22.7% (down from 24.1%) for construction and extraction occupations and 9.2% (up from 8.6%) for architecture and engineering occupations. Median weekly earnings in construction rose from $605 to $615 (1.7%), with union members going from $846 to $884 (4.5%) and nonunion workers going from $568 to $580 (2.1%).

The number of mass layoff events (involving 50 or more workers from a single establishment) dropped in 2003 for the second straight year, BLS reported Thursday. The number of initial unemployment claims fell 16% and the number of events fell 6% from 2002. In both years, highway, street, and bridge construction was the fourth-ranked industry for number of claims. Rankings are affected by whether an industry is both seasonal and has a substantial number of large establishments; thus, retailing may generate more total unemployment claims than highway construction but few stores are big enough for 50 workers to be laid off at once.

Diesel fuel and crude-oil prices hit their highest levels since March, respectively. The Energy Information Administration reported Tuesday that the average retail highway diesel price was $1.559, the highest since March 31. Crude-oil futures reached $36.70, the highest since March 17, before retreating.

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


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