Two fresh reports on construction show the industry remains strong. Today's news (June 3) from the Census Bureau that construction put in place in April held steady, coupled with the McGraw-Hill announcement that new projects rose in April, are both welcome indicators. It is encouraging to see that all types of construction are holding up well or climbing.
The aggregate figure from the Census Bureau showed that the value of construction put in place in April, $872 billion at a seasonally adjusted annual rate, was essentially level with the revised March total of $871 billion.
The March number, down 1.2% from February, was initially estimated to be $874 billion. Private residential building construction inched up 0.7% in April, private nonresidential construction was unchanged, and public construction was down 1.1%. For the first four months of 2002, construction put in place was virtually unchanged from the same period of 2001.
Another release on June 3, the Institute for Supply Management (ISM)'s widely watched manufacturing report, showed economic activity in that sector grew for the fourth straight month in May, to its highest level since February 2000, with 18 of 20 industries reporting growth. That report followed a Census report Friday that factory orders rose for the fifth month in a row in April.
Industrial construction, which has tumbled 43% since April 2001, finally showed a 1% gain for the latest month according to Census. Nevertheless, ISM and other measures of capacity utilization and manufacturing employment remain very low. Until these indicators show sustained improvement, warehouse and office construction are likely to remain depressed for months to come. Office construction was up 1% for the month but down 27% from April 2001, Census reported.
Another concern I have is that business air travel is still down by double-digit rates compared to a year ago. That has negative implications for airport construction, convention centers, hotels, and other travel-related facilities.
On the plus side, the biggest private nonresidential category, "other commercial," eked out a 1% gain in April and held its loss compared to April 2001 to 5%. The strong housing market helps a number of related nonresidential categories. Today's (June 3) report by the Office of Federal Housing Enterprise Oversight that home prices rose 6% in the first quarter compared to the first quarter of 2001 means that homeowners should feel wealthier, even if their stock portfolios are down. That wealth effect, along with continued strength in personal income and consumer spending should sustain commercial construction for the rest of the year.
Prices are not a major concern for the most part. Both of the Census Bureau's construction price indexes - the fixed-weight index and the implicit price deflator - have barely budged this year. The ISM reported that steel was in short supply and that steel and aluminum prices were up for the fourth straight month, but fuel prices have settled down. Insurance pricing and availability, including the lack of terrorism insurance, may hold back some construction, however.
