AIA, McGraw-Hill issue upbeat construction reports; home sales were mixed in July
Aug. 22, 2005

August 22, 2005
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Two favorable indicators for near-term construction activity came out yesterday and today. Today, Kermit Baker, Chief Economist for the American Institute of Architects, wrote, “firms reported strong gains nationally last month as the nonresidential construction expansion continued to pick up steam. There are no signs of a slowdown on the horizon. New project inquiries also increased in July. All told, it is shaping up to be a strong fall for design firms…in all regions…” (www.aia.org/aiarchitect/thisweek05/tw0826/tw0826otb.cfm) Yesterday, McGraw-Hill Construction reported, “The value of new construction starts increased 1% in July [seasonally adjusted]. Nonresidential building maintained its improving trend of recent months….Residential building continued to see robust activity, while nonbuilding construction settled back slightly from an elevated June. For the first seven months of 2005, total construction [contract values were] 6% above the corresponding period of 2004,” with residential building up 10%, nonbuilding up 7%, and nonresidential building down 5%.

Mixed reports surfaced this week about home sales. On Wednesday, the government reported that sales of new single-family houses in July rose 6.5% at a seasonally adjusted annual rate from June, and 28% from July 2004. The year-to-date total was 8.4% higher than in January-July 2004. The number of unsold new houses at the end of July was 4.0 times the number sold during the month, and the median sales price of $203,800 was down 4% from July 2004; the inventory/sales ratio and median price were the lowest in more than a year. (The median is the price above which half the sales occurred.) In contrast, the National Assn. of Realtors reported on Tuesday that sales of existing houses (including condominiums and cooperatives) in July slipped 2.6% at a seasonally adjusted annual rate from the record set in June, although sales were 4.7% higher than in July 2004. Inventories increased 2.6% to a 4.6-month supply at current selling rates, and the median price jumped 14% from July 2004. The sales drop was most pronounced for condos and coops: -5% from June.

The number of mass layoff events (those involving 50 or more workers from a single establishment) in July dropped 8% from July 2004 and involved 6% fewer workers, the Bureau of Labor Statistics (BLS) reported on Tuesday. Mass layoff events in construction fell 33%, from 119 in July 2004 to 80 in July 2005, and involved 28% fewer workers.

BLS on August 19 released July data on seasonally adjusted nonfarm employment by state (www.bls.gov/sae). From June to July, total nonfarm employment rose in 34 states, decreased in 14 states and the District of Columbia, and was unchanged in two states. From July 2004 to July 2005, employment rose by a statistically significant amount in 29 states and DC; in the other 21 states, the change was not significantly different from zero, up or down. Seasonally adjusted construction employment rose from the month before in 23 states, fell in 19, and was unchanged (or within 100 jobs) in eight states and DC. Compared to July 2004, construction employment rose in 45 states, fell in five, and was within 100 of prior-year totals in DC. Overall and construction employment results were similar to, but slightly weaker than, the monthly and year-over-year results reported last month. The largest year-over-year percentage gain in construction employment was in Idaho (16%), followed by Nevada (13%), Arizona (12%), Hawaii (11%), and Connecticut (9%). Decreases occurred in South Carolina, Michigan (both -2%), Iowa, Missouri (both -0.4%), and Ohio (-0.3%).

Overall and construction employment will be affected in the next several years by the Base Realignment and Closing Commission's final recommendations, announced Wednesday through today. Big winners include Ft. Bliss in Texas and New Mexico, Ft. Belvoir, Virginia, and several facilities in Georgia and Maryland. The expected influx of military personnel will generate demand for office space for military contractors and a variety of residential and commercial space, plus possible road and infrastructure improvements. Some of the ostensible losers, such as Walter Reed Army Medical Center in Washington, DC, and leased space for civilians in Arlington, Virginia, may eventually provide generate more construction as the land and buildings are converted to new uses, than if they had remained as is. And some facilities that the commission spared, such as Portsmouth (New Hampshire and Maine), Groton (Connecticut), and Ellsworth (South Dakota), may provide construction opportunities now that the cloud hanging over those communities has lifted.

The Segal Company, a benefit consultant, issued its annual survey of forecasted health plan cost trends for 2006 on August 5 (www.segalco.com). Respondents expect costs for most coverages to increase slightly less than in 2005. However, “Health care costs will likely grow faster than pay for the foreseeable future and will continue to place financial pressure on plan sponsors. Increasingly, plan sponsors are going beyond sharing more costs with participants in favor of adopting long-term strategies that address demand for services and the cost and quality of services,” the company said.

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