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- Dan Holohan: Heating Help
- Morris Beschloss: The Beschloss Perspective
- Hank Darlington: Showrooms
- Jim Wheeler: HVAC
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- Dick Friedman: Tech Tips
- Mike Miazga: In Closing
- Safety Columnists
- ASA President’s Letter
- Josh Brown: Generation Y Insights
- PVF OUTLOOK
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Nonresidential construction starts in January slid 13% from a year ago, according to information collected by Reed Construction Data and reported today. Heavy engineering and nonresidential building starts each fell 13%.
The biggest market-moving report of the week was the Institute for Supply Management (ISM)’s non-manufacturing index, with a reading of 44.6 out of 100, which “indicates contraction within the nonmanufacturing sector for January 2008. Nonnmanufacturing business activity contracted for the first time since March 2003.” It is impossible to know how representative this indicator is of actual conditions, however: ISM does not report how many responses it received and does not weight responses by firm size or the magnitude of the increases or decreases. Also, the survey is less than a decade old, so there is no prior experience with predicting downturns. Respondents listed the following items relevant to construction as up in price: copper wire, fuel and fuel surcharges, and steel products. Wallboard was listed as down in price.
Other reports also show steel and copper prices rising. Contractors have received letters from steel suppliers announcing price increases for structural and reinforcing steel. The Institute of Scrap Recycling Industries reported today, “AK Steel has upped its spot selling price for HR [hot-rolled] coil $30/net ton, effective immediately, thereby bringing prices to $700 for April shipments…same with ArcelorMittal…domestic mills continue to cite ‘pretty solid’ domestic demand, mill production problems, increased exports, limited imports, and scrap exports exacerbating overall higher input costs…SBB’s HR coil reference price this week has the Midwest spot market at $668 [per ton]-a 12-month high…Platts has the market this week at $675.” The Wall Street Journal reported on January 30, “Many domestic steelmakers in the U.S. have put in price increases, because steel mills have had limited production over the past few months and imports cost more because of higher shipping costs.” Copper futures on the New York Mercantile Exchange reached $3.53 per pound this afternoon, 41% higher than a year ago. The Journal reported on Saturday, “In the first 10 months of 2007, global copper consumption rose 7.2%..., according to the International Copper Study Group….Goldman Sachs Group Inc. warned Friday that a severe winter storm in China might disrupt copper production at smelters and refiners there.” And on January 25, the Journal reported, “mining industry officials in Zambia, a major copper producer, warned that its 2008 copper output could be hurt by power rationing and a halt in operations at some mines.”
Congress passed a fiscal “stimulus” bill, which President Bush is expected to sign, consisting mainly of temporary tax cuts for individuals and business investment. Contractors and other businesses that buy no more than $800,000 of equipment in 2008 (up from $510,000 under current law) would be able to expense (immediately deduct) the first $250,000 (up from $128,000). Businesses of any size could expense 50% of equipment bought in 2008, in addition to otherwise allowable depreciation on the remaining 50%. These provisions will help contractors that planned to buy equipment in 2008 or can accelerate purchases planned for 2009. But the bill does not contain any provisions that would increase demand for construction, such as funding for infrastructure projects. Both the Office of Management and Budget (OMB)’s budget released on Monday, and the Congressional Budget Office (CBO)’s January 23 report project a shortfall in the Highway Account of the federal Highway Trust Fund in fiscal 2009, beginning October 1, 2008. Unless Congress adds money to the account or waives the requirement that it be fully funded, current law would trigger a cut of $1-3 billion in federal aid to state highway programs, and a reduction nearly four times as great in new construction contracts.
Both supply and demand for commercial real estate loans, a source of funds for office, retail, warehouse and hotel construction, appear to be shrinking. About 80% of domestic banks reported tightening their lending standards on commercial real estate loans over the past three months, a notable increase from the October survey,” the Federal Reserve said on Monday in its January Senior Loan Officer Opinion Survey of 56 domestic banks and 23 foreign-owned banking institutions. “The net fraction of domestic banks reporting tighter lending standards on these loans was the highest since this question was introduced in 1990. About 55% of foreign banks-up from about 40% in the October survey-indicated that they had tightened their lending standards on such loans. Concerning loan demand, about 45% of both domestic and foreign respondents, on net, reported weaker demand for commercial real estate loans over the past three months. As in past years, the January survey queried banks about changes in their lending terms on commercial real estate loans over the previous 12 months. The responses to these special questions indicated that considerable net fractions of banks had tightened terms on commercial real estate loans in 2007; in contrast, in last year’s survey, banks reported that they had eased lending terms, on net, in 2006.” The Journal reported today, “In January no commercial mortgage-backed securities--pools of commercial real-estate loans-were issued. That’s the first time that’s happened since October 1990, says Commercial Mortgage Alert, a newsletter.”
New orders for U.S.-manufactured goods increased 2.3% in December, seasonally adjusted, and 1.4% for the year, the Census Bureau reported on Monday. Orders for construction materials and supplies slipped 0.6% and 1.3%. Orders for construction machinery, an often-volatile series, jumped 17% for the month but fell 28% for the year.