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Construction Total Slips in November

Construction total slips in November; tsunami, ISM report boost materials cost worries

The value of construction put in place in November totaled $1.013 trillion at a seasonally adjusted annual rate, the Census Bureau reported today. This figure was 0.4% less than the revised October total of $1.017 billion but higher than the original estimate for October. The total has been virtually unchanged (within +/-0.8% of that level) since July. On a year-to-date basis, spending for the first 11 months of 2004 was 9% higher than in January-November 2003. Private residential construction was 14% higher year-to-date; private nonresidential and public construction were each 3% higher. Within private nonresidential construction, strong growth was shown by general merchandise stores, +26%; shopping centers (other than malls), +19%; lodging, +17% year-to-date; health care (hospitals, medical buildings, and special care facilities), +10%; office, +5.5%. On the downside were electric power, -11%; warehouse, -5.5%; educational, -4%, and manufacturing, -1%. Within public construction, the two largest components, highways and streets and educational, were each 4% higher through November; sewage and waste disposal, +7.5%; office, +5%; transportation, +1%. Public amusement and recreation declined 9%. All of the private residential categories were higher through November: new single-unit, +20%; new multi-unit, +9%; and improvements, +3.5%. The figures are not adjusted for inflation, and it is not clear whether the deflated numbers would be positive. The November producer price index for construction materials and components was about 9% higher than the November 2003 value, but total construction costs, including labor and profit-type income, have risen less.

Materials costs appear headed higher early in 2005. Today the Institute for Supply Management (ISM) reported that manufacturing purchasing executives listed such construction inputs as aluminum, copper, diesel fuel, plastic resins, and steel among materials that cost more in December than in November, although some reported price decreases for fuel and steel. Resins and steel were reported in short supply. ISM noted, "Commenters from respondents this month focused on inflation, margins, and seasonal issues. While many manufacturers are enjoying strong sales, there is concern that inflation is taking its toll on margins, thus reducing profits. While energy and basic commodities are the drivers behind the higher prices, the responses this month show signs of a peak in some commodities."

The catastrophic tsunami in Asia last week is also likely to put upward pressure on some construction materials costs. Materials for which imports make up a significant share of consumption, such as cement and steel, may be harder to obtain in early 2005, either because the products themselves are being shipped to Asia or because the ships that bring them to the U.S. are being used for relief deliveries. In contrast, oil prices have continued to slide from their October peak of more than $55 per barrel, ending the year at $43.45. This decline has also shown up in retail diesel prices, which fell from $2.21 per gallon in October to $1.99 by December 27.

Another reading on construction activity, McGraw-Hill Construction's estimate of new construction starts, slipped 3% in November, the company reported Wednesday. This total includes the full value of new contracts signed that month, unlike the Census data, which measure actual spending in that month. The McGraw-Hill data cover about 56% of the Census total. The 11-month total was 9% higher than for the same period of 2003, with residential up 16%, nonresidential building up 3%, and nonbuilding construction up 1%.

Existing single-family home sales rose 2.7% to the highest monthly pace on record in November, hitting a seasonally adjusted annual rate of 6,940,000, the National Assn. of Realtors (NAR) reported Wednesday. The increase is a notable contrast to the government report a week earlier that new-home sales declined 12% in November. Part of the difference may be due to timing: new-home sales are measured when a contract is signed, whereas existing-home sales are recorded when the closing occurs, typically 45-90 days later. In addition, both series are subject to considerable revision. The series differ little over the first 11 months of 2004: existing-home sales rose 13% from the same span of 2003, whereas new-home sales rose 10%. The fact that mortgage rates have remained flat through December should keep housing sales more or less level for now. NAR reported that the median sales price for existing homes in November was $188,200, up 10% from November 2003. The inventory of unsold homes rose 2% from October and represented a moderate 4.3 months of sales at the November selling rate.

Nonfarm payroll employment in 216 (79%) out of 274 metro areas rose between November 2003 and November 2004, the Bureau of Labor Statistics reported Wednesday. The largest over-the-year percentage increases were in the metro areas covering Las Vegas, Provo-Orem, Utah, Boise, and Waterloo-Cedar Falls, Iowa (all +5%). Employment was unchanged in six metro areas and dropped in 52, led by Lansing-East Lansing, Michigan (-4%), Muncie, Indiana, Iowa City, Iowa, and Jackson and Saginaw-Bay City-Midland, Michigan (-3%).

        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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