Construction Economic News

Reed, NABE, Fed report sharp drops in construction; CPI, some materials costs rise

July 21, 2009

The value of nonresidential construction starts in June "decreased 71% from May, more than offsetting the 27% increase the previous month," Reed Construction Data Chief Economist Jim Haughey reported on Thursday, based on Reed's compilation of starts. "Every construction category declined significantly in June….The May-June boom/bust is substantially random. Nonetheless, the slim starts total reported for June does signal that nonresidential construction is entering the weakest period in this business cycle. But by itself, June was not as grim as the starts total suggests….The 22% year-to-date decline is a better indicator of the trend for the rest of the year than the 71% June decline. The current bid calendar suggests that much of the June drop will be reversed in the next few months."

A quarterly survey of 102 corporate and trade association economists released on Monday by the National Association for Business Economics ( "provides new evidence that the U.S. recession is abating, but few signs of an immediate recovery," said Sara Johnson, of IHS Global Insight. "Only 10% [of 59 respondents to the question] expect to increase capital spending expectations on structures over the next 12 months, congruent with April's results" and the fourth straight quarter in which more respondents expect a decrease than an increase in investment in structures.  

Industrial production (IP) in manufacturing sagged 0.6% in June, seasonally adjusted, and 15.5% over 12 months, the Federal Reserve reported on Wednesday.  IP of construction supplies fell 0.2% and 21%. Manufacturing capacity utilization, which along with IP can indicate future demand for factory construction, slumped to 64.6% of capacity, compared to a long-term average of 79.6%.

The consumer price index (CPI) for all urban consumers climbed 0.7% in June, seasonally adjusted, but fell 1.4% over 12 months, the biggest drop since 1950, BLS reported on Wednesday. The CPI for urban wage earners and clerical workers (CPI-W), which is used to adjust many wage contracts in construction and elsewhere, fell 2.0% over 12 months.

Some construction materials prices are rising. Nucor-Yamato Steel on Wednesday announced a $40-per-ton net increase in structural steel prices effective on August 1, matching an earlier announcement by Gerdau Ameristeel. Lafarge Aggregates and Concrete on June 30 announced an aggregate price increase effective on August 1 that "will vary between 0% and 6%, dependent on Lafarge location and product type." The Illinois Department of Transportation released its July bituminous (liquid asphalt) index on July 9; it rose 5.9% from the June level. But the Energy Information Administration reported on Monday that the average price of on-highway diesel fuel fell for the fourth straight week, to $2.50 per gallon, 47% less than one year ago.

Seasonally adjusted nonfarm payroll employment by state fell in June in 39 states and the District of Columbia, rose in 10 states and was unchanged in South Dakota, the Bureau of Labor Statistics (BLS) reported on Friday. Compared to June 2008, employment fell everywhere except in North Dakota (+1.6%) and Alaska (unchanged). The largest 12-month percentage decreases were in Michigan, -8.1%, Arizona, -7.4%, Nevada, -6.2% and Oregon, -5.6%. The unemployment rate rose everywhere from a year earlier. Seasonally adjusted construction employment rose from May to June in 12 states, fell in 375 plus D.C. and was unchanged in Hawaii, Indiana and Maryland. Compared to June 2008, construction employment decreased everywhere except in North Dakota (+5%) and Louisiana (+4%). The biggest percentage declines were in Arizona, -26%; Nevada, -23%; Connecticut, -22%; Tennessee, -20%; and Kentucky and California, -19% each.

Build America bonds have become a hot way to finance state-funded construction. "Led by a $352 million sale from the North Carolina Turnpike Authority, the Build America Bonds program generate $1.72 billion of new issuance this past week, comprising nearly a quarter of municipal sales,…and $7.9 billion in just the past eight weeks," the Wall Street Journal reported on Saturday. "…they have been a shot in the arm for municipal borrowers. In February, Kentucky explored selling bonds but found investors uninterested and prospects dim. When the state tried again in June, however, it sold $209 million of Build America bonds easily, says Tom Howard, director of the Kentucky office of financial management."

"State tax collections for the first quarter of 2009 showed a drop of 11.7%, the sharpest decline in the 46 years for which quarterly data are available," the Rockefeller Institute of Government ( reported on Friday. "After adjusting for inflation, legislative changes, and known anomalies, tax revenue declined in 47 states….The local tax slowdown has been less pronounced than the state tax slowdown. In the first quarter of 2009, local tax collections rose by 3.9%, drive by 7.4% growth in property taxes." In an ominous portent for highway construction, which depends heavily in many states on fuel and vehicle tax collections, "motor fuel tax revenue continued to decline for the ninth consecutive quarter with a drop of 4.9%. Revenue from motor vehicle and operators' licenses also fell, for the eighth consecutive quarter, by 1.7%." According to a survey by the Council of State Governments, "States plan to use about half of some $8.8 billion in unencumbered stimulus money they will receive to plug budget deficits, underscoring the financial difficulties many are facing," the Journal reported on July 9. "Wyoming plans to use almost all of its funds to build or renovate eight juvenile detention facilities" but the article listed only nonconstruction uses for Alaska, Utah and North Dakota.