Starts rebounded in May but slid year-to-date, Reed says; Beige Book is mostly gray
June 12, 2009
The value of nonresidential construction starts jumped 16% in May (not seasonally adjusted) but was down 6.2% for the first five months of 2009 compared to the same period in 2008, Reed Construction Data reported on Thursday, based on its own compilation of starts. Chief Economist Jim Haughey commented, "However, May starts were 20% below last December. The volume decline is greater than 20% because bid prices have inched lower and May is typically a seasonally stronger month than December. The May starts increase partly offsets an unusually weak April and does not signal that starts have moved to a rising trend. That is still many months away, near yearend. Expect a mix of monthly gains and losses for the balance of the year, with the average level of starts not significantly different from May. Credit problems promise more delays and cancellations for commercial buildings and strained budget balances promise cutbacks in public building construction later this year. Highway, bridge and water/sewer starts will be boosted as more stimulus contract work begins….The economic stimulus plan has directly funded a little more than 1% of the estimated $275 billion spent on construction, excluding housing, in 2009 through May. This includes: (1) the $1.5 billion reimbursed to states through early June for highway projects; (2) smaller federal reimbursements for other construction work; and (3) an allowance for construction work completed that has not yet been reimbursed."
"Reports from the twelve Federal Reserve District Banks indicate that economic conditions remained weak or deteriorated further during the period from mid-April through May," the Fed reported on Wednesday in the latest Beige Book (so named for the color of its cover), a summary of informal soundings of businesses in the 12 districts, which are referred to by the names of the headquarters cities. "However, five of the Districts noted that the downward trend is showing signs of moderating. Further, contacts from several Districts said that their expectations have improved, though they do not see a substantial increase in economic activity through the end of the year….Vacancy rates for commercial properties were rising in many parts of the country, while developers are finding financing for new commercial projects increasingly difficult to obtain….Orders and shipments of capital goods, autos, paper, and construction-related equipment and products such as metals, wood products, lumber and electrical machinery remained mostly sluggish and below year-ago levels…Nonresidential real estate conditions continued to deteriorate over the past six weeks. Demand for office, industrial and retail space continued to fall, and there were reports of increases in sublease space. Rental concessions were rising. Property values moved lower as reality 'set in.' Construction activity continues to slow, and several Districts noted increased postponement of both private and public projects. Nonresidential construction is expected to decline through yearend, although there were some hopeful reports that the stimulus package may lead to some improvement. Commercial real estate investment activity weakened further. Contacts said a decline in credit availability and markdowns on commercial property were keeping buyers and sellers on the sidelines….The Dallas District noted further [employment]cuts in the real estate and construction industry."
"I have been seeing wild swings in structural steel pricing lately," one Data DIGest reader reported on Wednesday. "Recent projects have brought bids from steel subs ranging anywhere from $2200 a ton to $3200 a ton for structural shapes." Two leading rebar suppliers last month announced price increases of $20 per ton and $40 per ton, respectively, effective June 1. "Universal Stainless & Alloy Products Inc….has boosted prices 5% to 6% twice since the beginning of May," the Wall Street Journal reported on Wednesday. "In April, Allegheny Technologies, Inc., AK Steel Corp. and North American Stainless Inc. each said they would increase prices for some types of stainless steel about 5% to 6%. Last month, RathGibson Inc, a small specialty steelmaker based in Lincolnshire, Ill., told customers it was increasing prices 6% on average."
Prices of crude oil and diesel fuel have moved up from recent lows. The near-month futures price for West Texas Intermediate crude topped $72 this week, more than double the $33.98 low point reached in February. The national average retail price for on-highway diesel fuel jumped 15 cents per gallon this week to $2.50, the Energy Information Administration reported on Monday. That was up 24% from a low of $2.02 on March 16 but was 47% less than the year-ago level of $4.69. But asphalt price indexes were mixed. The New Mexico Department of Transportation (DOT) reported on Wednesday that its monthly asphalt rack-price index for July would be $553 after remaining at a low of $543 in April-June. The Illinois DOT reported on Monday that its bituminous index for June fell to $404 from $417 in May.
Employer costs for employee compensation (wages, salaries, benefits and required payments) averaged $31.20 per hour worked in March for full-time workers in private industry, the Bureau of Labor Statistics reported on Wednesday. Wages and salaries accounted for $21.72 (70%); insurance, $2.58 (8%); legally required benefits (employer taxes and workers' compensation), $2.48 (8%); paid leave, $2.30 (7%); retirement and savings, $1.18 (4%); and supplemental pay, $0.94 (3%). Compensation averaged $31.62 in construction, 1% more than the all-private total. Wages and salaries averaged $21.78 (69%); insurance, $2.38 (8%); legally required benefits, $3.52 (11%, reflecting much higher workers' comp than in all industry); paid leave, $1.17 (4%); retirement and savings, $1.67 (5%); and supplemental pay, $1.11 (4%).