Vol. 3, No.35 August 22-Sept. 2, 2003
The Data DIGest
Ken Simonson, Chief Economist, Associated General Contractors of America
Phone: 703-837-5313 Fax: 703-837-5407

Manufacturing, housing indicators remain positive; GDP strengthens

   The Institute for Supply Management (ISM) reported today, "Economic activity in the manufacturing sector grew for the second consective month, while the overall economy grew for the 22nd consecutive month." ISM's overall PMI index rose from 51.8 in July to 54.7 in August; a reading above 50 is thought to signal expansion in manufacturing and a reading of 43 or above suggests growth in the economy. "Manufacturers supplying the construction industry continue to mention a positive effect from the seasonal upswing in the economy," ISM stated.

   The ISM report reinforces last Tuesday’s Census Bureau report that new orders for durable goods (excluding semiconductor manufacturing) increased 1%, seasonally adjusted, from June to July, following a 2.6% gain in June and no change in May. Year-to-date orders are 0.1% below the January-July 2002 total.

   Seasonally adjusted personal income rose 0.2% in July, following increases of 0.4% the previous two months, the Bureau of Economic Analysis (BEA) reported Friday. Tax “rebates” and cuts in withholding pushed up disposable (net of tax) personal income by 1.5% in July. Personal consumption expenditures climbed 0.8% in July, 0.6% in June, and 0.5% in May.

Seasonally adjusted real (net of inflation) gross domestic product rose at a 3.1% annual rate in the second quarter, rather than 2.4% as initially estimated, BEA reported Thursday. Real investment in private nonresidential structures jumped 7.1%, rather than 4.8% as first estimated, and compared to a 2.9% drop in the first quarter. Real investment in private nonresidential buildings (including farm) rose at a seasonally adjusted annual rate of $1.7 billion after falling $1.3 billion in the first quarter and $33 billion in the fourth quarter of 2002. But real investment in utility structures fell $2.2 billion, following drops of $1.4 billion and $3.0 billion. The same report included preliminary estimates of second-quarter corporate profits, which showed an increase of $88 billion in profits from current production (net of depreciation changes included in the tax bill enacted in May), compared to $20 billion in the first quarter.

New and existing single-family home sales remained strong in July. The National Assn. of Realtors (NAR) reported August 25 that existing-home sales hit a record seasonally adjusted annual rate of 6,120,000, up 5% from June and 14% from July 2002. The median price rose to $182,100, up 12% from a year before. The number of unsold homes on the market dropped 4.4% from June to July and equalled 4.7 times the July sales rate. The next day the Census Bureau reported that sales of new homes in July totaled 1,165,000, down 3% from June’s revised total but up 21% from the year-ago month. The median new-home price rose 9% over the year to $191,500. The supply of new homes for sale remained at June’s low level of 3.5 months.

A third measure of house price growth was released today by the Office of Federal Housing Enterprise Oversight (OFHEO), the agency that oversees Fannie Mae and Freddie Mac. “Average U.S. home prices increased 5.6% from the second quarter of 2002 through the second quarter of 2003,” OFHEO reported (www.ofheo.gov/media/pdf/2q03hpi.pdf). The District of Columbia and 17 states, led by Rhode Island (11.8%), beat the national average; Nebraska had the least appreciation (2.1%). The report also ranks 220 metropolitan areas, from Fort Pierce-St. Lucie, Florida (14.7%) to Springfield, Illinois (1.2%) and lists without ranking the growth rates for 111 areas with less data. Unlike the NAR and Census reports, OFHEO includes refinancings as well as sales and covers a far larger database. However, OFHEO excludes homes with “jumbo” and VA or FHA-guaranteed and -insured loans, which may show different rates of appreciation from homes with “conventional, conforming” loans. For the quarter, growth was 0.8%, down from 1.2% in the first quarter and from a high of 2.2% a year ago.

New construction starts slipped 4% at a seasonally adjusted annual rate from “a very strong June” to July, according to a release last Thursday from McGraw-Hill Construction Dodge.The year-to-date total is 1% below the first seven months of 2002, with residential building up 9%, nonresidential building down 5%, and nonbuilding construction down 15%.

Gasoline and on-highway diesel prices fell slightly this week, the Energy Information Administration reported this afternoon. The average gasoline price dropped 0.1 cent per gallon from last week’s record high of $1.787 per gallon, while the average price of diesel fuel fell 0.2 cents to $1.501.

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

March 17-24

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