Operations & Technology

Dec. 5, 2007 ― Construction Spending Drops In October But Nonres Rises

December 5, 2007
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Construction spending in October, at a seasonally adjusted annual rate of $1.158 trillion, fell 0.8 percent from September and 0.6 percent from October 2006, according to the Census Bureau.

Construction spending in October, at a seasonally adjusted annual rate of $1.158 trillion, fell 0.8% from September and 0.6% from October 2006, the Census Bureau reported on Friday. Private residential construction was down 2% and 16%, respectively; private nonresidential was down -0.5% and up 17%; and public construction rose 0.8% and 15%. The four biggest nonresidential components (combining private and public construction) rose: educational, 2% and 19%; commercial (retail, warehouse and farm), 0.1% and 10%; highway, 0.8% and 9.2%; office, 1.6% and 19%. Other segments varied relative to September, but all except religious were up compared to October 2006. Examples include: power, -5.9% and 20%; health care, 0.8% and 14%; manufacturing, -2.3% and 6.1%; lodging, 0.8% and 64%. New single-family fell 4% and 16%; new multi-family slid 0.2% and 13%; but residential improvements rose 0.5% and 5.0%.

The Bureau of Labor Statistics (BLS) recently released economic and employment projections for 2006-2016 in five articles in the November issue of the Monthly Labor Review (www.bls.gov/opub/mlr/mlrhome.htm). BLS projected that overall output, net of inflation (real gross domestic product), would rise at an average annual rate of 2.8%, vs. 3.1% in 1996-2006, and nonagricultural wage and salary employment at 1.0%, down from 1.3%. Construction output is projected to climb 1.4% per year, down from 2%, and construction employment is projected to rise by 781,000 jobs, or 1% per year. Construction is third among all industries, after food services and drinking places and offices of health practitioners, in the number of jobs to be added. BLS wrote, “While there was only minimal growth in nonresidential investment during the previous decade (0.3% annually), it is expected to grow at a rate of 1.5% annually over the 2006–16 period. Expanding construction of nursing homes and other medical treatment facilities, as well as new schools in faster growing regions, is expected to continue through 2016, as changing demographics play a greater role in nonresidential investment. Continued work to improve roads and bridges across the country and the replacement and remodeling of industrial plants, which will require improvements for a large number of structures, is expected to provide further support for the expansion of construction output during the projection period. Investment in residential construction is projected to grow at an annual rate of 1.7% throughout the 2006–16 period. Although this represents a deceleration from the rapid growth experienced during the previous decade, long-term growth is expected to continue and will be strongly influenced by demographic trends, including an aging population. The building of new retirement communities, as well as remodeling and home improvement for existing structures, is expected to continue throughout the projection period.”

BLS also projected employment and self-employment by occupation and total job openings due to growth and net replacements. Among management, business and financial workers, “construction managers are projected to have the greatest increase in self-employment…Self-employment, which represents almost 1 in 5 construction and extraction jobs, is projected to increase 7%, with self-employed painters and carpenters exhibiting the largest increase.” Construction manager jobs are projected to rise by 77,000 or 16%, vs. 10% for all occupations, plus 75,000 net replacements. Construction trades and related workers are projected to rise by 622,000 or 10% (plus 1,097,000 net replacements). Of those, the largest numerical increase is for carpenters (150,000 or 10%, plus 198,000 net replacements). The largest percentage increase among these occupations is construction and building inspectors, up 18% or 20,000 (plus 20,000 net replacements).

New orders for U.S.-manufactured goods (other than semiconductor manufacturing) increased 0.5%, seasonally adjusted, in October, the fourth increase in five months, Census reported today. Orders for construction materials and supplies slipped 1.3%, after a gain of 1% in September. Orders for construction machinery fell 16% and 8%, respectively.

Prices paid by nonmanufacturing organizations for purchased materials and services increased in November for the 54th consecutive month, the Institute for Supply Management reported today, with 46% of respondents reporting higher prices, up from 30% in October. Items important to construction that rose in price included: diesel fuel, freight fuel surcharges and plastic pipe. Respondents to both this survey and the manufacturing purchasing executives’ survey, released on Monday, listed no items as lower in price or in short supply.

Construction of alternative energy and power facilities appears to be booming, aside from ethanol plants, which are rapidly being canceled or deferred. A sample of media reports in the past few weeks: This week, the University of South Carolina will fire up its new $19-million high-tech biomass energy plant….Dynamic Fuels LLC, a joint venture between Tyson Foods and Syntroleum Corp., has picked Geismar, La. as the site for a $135 million refinery producing renewable diesel and jet fuel from chicken fat and other agricultural waste, Louisiana Governor Kathleen Blanco announced on November 14….The East Fork biodiesel plant in Algona, Iowa, one of the world’s 10 largest biodiesel facilities, was inaugurated on Friday by Renewable Energy Group, which is building similar-sized plants in Alberta, New Orleans and Emporia, Kansas….Construction will begin soon on a 316,000-square-foot wind turbine blade factory in Newton, Iowa, TPI Composites of Warren, R.I., announced on November 26….The Kansas City Business Journal reported on November 16, “U.S Energy Services…has energy management and development contracts with 125 ethanol plants…Of the plant projects that have engaged the company but have not yet started construction, more than half have been put on hold, and, of those, about a third have been canceled.”

House price appreciation generally slowed in the third quarter but showed huge variation by state, the Office of Federal Housing Enterprise Oversight reported on Thursday (www.ofheo.gov). The report tracks resales and refinances of homes with mortgages bought by Fannie Mae or Freddie Mac and excludes houses financed with “jumbo,” subprime and “alt-A” loans. Even for these “prime” mortgages, prices fell 0.4% nationally, the first drop since 1994, declining in 21 states.

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