|From the Chief Economist
Ken Simonson, Chief Economist
Associated General Contractors of America
August 1, 2003
Revised Construction Data Shows Free Fall Ending, AGC Economist Says
“The worst is over for nonresidential construction,” said Kenneth D. Simonson, chief economist for the Associated General Contractors of America (AGC), the nation’s leading construction trade association.
“Overall, the value of construction put in place was flat in June, as reported in new data today from the Census Bureau. The Census data includes numerous changes in classification and presentation,” Simonson said, “but the upshot is that the free fall in private nonresidential construction has ended, at least for now. However, there are danger signs for housing.
“Despite the ongoing boom in single-family housing starts, the value of private residential construction put in place has actually slipped every month since January, when it peaked at a seasonally adjusted annual rate of $456 billion. The June total, $435 billion, was down by 0.4% from May and 4.6% from January but rose 3.5% compared to June 2002.
“Unfortunately, the Census Bureau’s presentation no longer shows total private nonresidential construction,” Simonson lamented. “But subtracting residential from total private construction reveals that the nonresidential piece was essentially unchanged from May to June at $217 billion. It has hovered near that figure since last August, although it is down 4.2% from June 2002.
“Public construction has been gaining ground for several months,” Simonson noted. “The total for June, $212 billion, was up by 1% from May, the third straight monthly gain. The figure is 1.9% higher than in June 2002.
“Several other indicators suggest that private nonresidential construction may be stabilizing, although I think it is too early to predict an upturn,” Simonson said. “Yesterday’s advance report on gross domestic product from the Bureau of Economic Analysis showed that investment in private nonresidential structures in the second quarter rose after six quarters of decreases, most of them steep. However, that gain was boosted by BEA’s inclusion of mining exploration, shafts and wells, which are not part of the Census data or the generally understood concept of construction.”
Simonson added, “Another favorable sign came from McGraw-Hill Construction, which reported Wednesday that the value of new construction contracts rose 9% from May to June, led by a 29% surge in nonbuilding construction and a 10% gain in nonresidential building construction. This data is less complete than the Census figures but does provide a look into the future, since the contracts turn into construction put in place over a period of years. For the first half of 2003, the McGraw-Hill series is down 2% compared to the same period of 2002.”
Simonson concluded, “Four other recent reports present very mixed omens for construction. Personal income and consumption are growing at pretty steady rates and consumption may accelerate briefly when families get their one-time tax ‘rebate’ checks in the next few weeks. The employment scene is still ugly, however. Manufacturing may be poised for a pickup at last, according to today’s report from the Institute for Supply Management. And the latest ‘Beige Book’ survey from the Federal Reserve shows that the economy in general and nonresidential construction are still struggling but perhaps not as badly as in prior months.”
Note: The new Census data, with a note explaining changes from prior reports, are at http://www.census.gov/const/www/c30index.html.
Copyright © 2002 Mike Holt Enterprises,Inc.