Evidence that nonresidential construction remains robust came from Reed Construction Data, which reported on May 14 that the January-April value of nonresidential construction starts from Reed’s database was 22% higher than in the same months of 2006.

Evidence that nonresidential construction remains robust came from Reed Construction Data, which reported on May 14 that the January-April value of nonresidential construction starts from Reed’s database was 22% higher than in the same months of 2006. Nonresidential building starts jumped 23% and heavy engineering rose 18% “in spite of weak growth in highway construction and paving…Commercial starts in April were the second highest ever reported, below only January 2007. Institutional starts in April were the third highest ever reported. Hotels and offices continue to be the fastest-growing commercial sectors…Education has replaced healthcare as the fastest expanding institutional sector, although the small nursing-home market is still expanding rapidly.”
Reed also reported manufacturing construction starts leaped 61%. Adding to a long list of recent factory projects, Paccar announced on May 11 that it would build a $400 million truck engine plant in Columbus, MS. The Federal Reserve reported on Wednesday that industrial production (IP) in manufacturing gained 0.5% in April, following an increase of 0.6% in March, and 1.9% from April 2006. IP for construction supplies rose 0.4% in April and 1.2% in March but was down 2.1% from April 2006. Capacity utilization in manufacturing, which, in combination with rising IP, can indicate the need for additional plant construction, was 80.2% of capacity in April, up from 80% in March and above the long-term average of 79.8%.
New privately owned housing starts in April increased 2.5% from March at a seasonally adjusted annual rate but fell 16% compared to April 2006, the Census Bureau reported on Wednesday. Single-family starts were up 1.6% for the month but down 19% year-over-year; multifamily, up 6.3% and down 7.6%. Building permits, which are generally a reliable indicator of near-term construction, tumbled 8.9% for the month and 28% year-over-year, with single-family permits down 6% and 29% and multifamily permits down 16% and 26%. The National Association of Home Builders reported on Tuesday, “Ongoing concerns about subprime-related problems in the mortgage market caused builder confidence about the state of housing demand to [return] to the lowest level in its current cycle, which was previously hit in September 2006.”
Seasonally adjusted nonfarm payroll employment by state increased in 26 states and the District of Columbia in April, decreased in 22 states and was unchanged in South Dakota and Vermont, the Bureau of Labor Statistics (BLS) reported on Friday. From April 2006 to April 2007, employment increased everywhere except in Ohio (-0.2%) and Michigan (-1%). The biggest year-over-year percentage gains were in Utah, 4.6%; Arizona and Louisiana, 3.8% each; Wyoming, 3.6%; and Montana, 3.2%. Nationally, employment rose by only 88,000 in April, half the previous month’s total, as construction employment went from a large gain in March to a drop in all five residential and nonresidential segments in April. Year-over-year, national employment was up 1.4%; construction was down 0.2%. Construction employment increased in April in only 20 states, fell in 22 plus DC, and was unchanged (or within 100 of the March level) in eight. Year-over-year, construction employment climbed in 35 states, fell in 12 plus DC, and was within 100 of the April 2006 level in New Mexico, Vermont and Virginia. The largest percentage gains in construction were in Utah, 15%; Montana, 12%; Wyoming, 8%; Hawaii, Mississippi and Tennesse, 6% each. The steepest drops were in Delaware, Massachusetts and New Hampshire, -3% each; and Michigan, -7%. Given the national totals (residential, -2.8%; nonresidential +4%), it is likely most of the declines are in residential construction, but this level of detail is not available at the state level.
On May 14, the Fed released its quarterly survey of senior bank loan officers, conducted in April. Of 53 respondents from U.S. banks, 18 said they had tightened commercial real estate lending standards “somewhat;” two had eased standards somewhat. None had tightened or eased “considerably.” The Fed said this was “a somewhat larger net fraction than in the previous survey…As in the January survey, 35% of domestic respondents noted that they had experienced weaker demand for such loans over the same period. By contrast, the vast majority of [the 15 subsidiaries of] foreign respondents reported that lending standards on commercial real estate loans had remained basically unchanged in the April survey. Demand for such loans at these institutions was also said to be essentially unchanged over the past three months.” About half of the domestic lenders said they had tightened standards on subprime or nontraditional mortgages. “A large majority of respondents indicated that standards on prime residential mortgages had remained basically unchanged over the past three months, with 15% reporting somewhat tighter standards…Tighter standards on subprime and nontraditional mortgage loans generally were not associated with a move toward more-stringent lending policies for prime mortgages…On net, about one-fifth of domestic institutions indicated that they had seen weaker demand for each of the three categories of residential mortgages-prime, nontraditional, and subprime-over the past three months.”
The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics. All rights reserved.