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Construction Economic Notes – November, 2012

11/16/2012 by Bernard M. Markstein

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Executive Summary

Recent major developments for commercial construction and the U.S. economy
  • October nonfarm payroll employment increased a seasonally adjusted (SA) 171,000. Also, August’s and September’s numbers were revised up from 142,000 and 114,000 to 192,000 and 148,000, respectively.
  • October’s unemployment rate remained below 8.0%, although it did creep up from September’s 7.8% to 7.9%.
  • The October not seasonally adjusted (NSA) unemployment rate among construction workers remained high at 11.4%, but was well down from October 2011’s 13.7%.
  • September’s total commercial construction spending, $851.6 billion at a seasonally adjusted annual rate (SAAR), was up 0.6% from August and up 8.9% year-to-date compared to the same period last year. July spending was revised up $4.6 billion, and August was revised up $9.1 billion—0.5% and 1.1% higher than previously reported, respectively.
    • Nonresidential construction spending: $294.4 billion was down 1.4% from August and up 6.4% year-to-date compared to the same period last year. July was revised down $1.9 billion, 0.6% lower than reported last month, while August was revised up $2.2 billion, 0.7% higher than previously reported. Only two spending categories increased in September: manufacturing (+3.5%) and amusement/recreation (+2.8%). All but two categories were up on a year-over-year basis: amusement/recreation (-1.4%) and religious (-8.9%)
    • Heavy engineering construction spending: $265.0 billion was up 0.7% from August and up 8.6% year-to-date from the same period last year. July was revised up $2.8 billion, 1.1% higher than reported last month, while August was revised up $2.3 billion, 0.9% higher than previously reported
    • New residential construction spending was $165.3 billion, up 3.3% from August and up 16.1% year-to-date from the same period last year
    • Private construction spending increased for the seventh month in a row, up $7.7 billion (+1.3%) from August. Year-to-date private spending was up 15.7% from the same period last year. July’s spending number was revised up $7.6 billion, 1.3% higher than previously reported, and August was revised up $10.6 billion, 1.9% higher than previously reported
    • Public spending fell $2.3 billion, -0.8%, and was down 2.7% year-to-date from the same period last year. July spending numbers were revised down $3.0 billion, 1.1% lower than previously reported, and August spending numbers were revised down $1.5 billion, 0.6% lower than previously reported
  • The September Producer Price Index (PPI) for building materials prices (does not include labor costs) rose 0.3% (SA) after rising 0.2% in August and was up 2.1% from September 2011.
  • The nonresidential construction PPI increased 1.2% (NSA) in September following an increase of 1.0% the month before. On a year-over-year basis, the index was up 1.6%. Higher energy prices were the primary catalyst for the recent increases.

Some Additional Information on Economic Developments

October nonfarm payroll employment increased 171,000 (SA). Over the past four months, payroll employment increased an average of 173,000 per month, and year-to-date it averaged 157,000 per month—not stellar numbers, but good solid numbers nonetheless.

October’s unemployment rate rose 0.1% to 7.9% following September’s 0.3% drop to 7.8%. The slight rise in the unemployment rate was due to new job seekers adding to the number of unemployed faster than others found jobs. A rising unemployment rate is typical of the early stage of an improving jobs market, as the improving employment outlook attracts job hunters faster than workers are hired. Only later in the cycle, as the number of new and returning job seekers slows and employment gains continue, does the unemployment rate fall.

The October unemployment rate among construction workers was 11.4% (NSA), down from 13.7% in October 2011. Over that period, 177,000 construction workers found employment, but the number of unemployed construction workers fell by 199,000—reducing the construction labor force by a net 22,000 workers as some workers left construction for jobs in other industries or retired.

Construction spending increased 0.6% (SA) in September, after slipping 0.1% in August. Total residential construction, which includes improvements, continued to be the big percentage gainer, up 2.7% for the month. New residential construction, which excludes improvements, was up an even stronger 3.3%. Single-family construction spending was the main driver of higher new residential construction, powering up 3.9% while multifamily construction spending moved ahead 0.7%. Heavy engineering construction spending contributed to the overall increase, rebounding 0.7% from August’s 1.6% drop. Nonresidential construction is struggling, with spending falling 1.4% in September after increasing only 0.2% in August.

Housing is clearly in a recovery phase although some of the percentage increases are large due to the extraordinarily low level of residential construction activity in recent years. More to the point, residential construction is no longer a drag on the economy but a contributor, returning to its historical role of an engine for expansion.

On a year-to-date basis as of September, construction spending for single-family houses increased 15.9% and construction spending for multifamily projects increased 16.7% over the same period in 2011.

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