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First-quarter construction activity was mixed; industry's labor compensation costs rose
April 29

May 1, 2005
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Early measures of first-quarter construction activity show weakness compared to late 2004 but a modest improvement relative to the first quarter of 2004. The value of new construction contracts rose 4% from February to March, McGraw-Hill Construction reported today. “Nonresidential building showed signs of strengthening after a weak February, and modest growth was reported for housing and public works. During the first three months of 2005, total construction [was] up 2% relative to the same period a year ago….March brings contracting back to a level slightly above last year's average.” McGraw-Hill breaks construction into residential building, up 7% in the first quarter from the year-ago quarter; nonresidential construction, down 12%; and nonbuilding construction, up 9%. McGraw-Hill counts the full value of new contracts in the month they take effect, providing a leading indicator of construction spending. Coverage equals about 55% of what the Census Bureau reports as construction spending. Neither source estimates “real” (net of inflation) spending.

On Thursday, the Bureau of Economic Analysis (BEA) reported its “advance” estimate of first quarter real gross domestic product (GDP) was up 3.1% in the first quarter from the last quarter of 2004 at a seasonally adjusted annual rate. This was down from a final estimate of 3.8% for fourth-quarter growth but matched the advance estimate for that quarter released in January. BEA noted that on average, the final estimate diverges 0.7 percentage points up or down from the advance estimate, with upward revisions typically a little larger than downward. One component of GDP, real gross private domestic investment in nonresidential structures (including mine shafts and wells), fell 2.6% in the first quarter after rising 2.1% in last year's fourth quarter. This year's total is 1.3% higher than last year's first-quarter total. The price index for private nonresidential structures jumped 10.7%, just below the 10.9% increase in the fourth quarter and more than triple the 3.3% change in the overall GDP price index.

Housing starts tumbled 18% in March from an upwardly revised February rate, and were 8% lower than in March 2004, the government reported on April 19. Although they are seasonally adjusted, monthly totals can be distorted by severe weather. A more reliable picture comes from year-to-date figures, which climbed 5% from the first three months of 2004 to January-March 2005. Single-family starts rose 6%, multi-unit, 2%. Building permits, a reliable indicator of near-future starts, slipped 4% for the month but were 4% higher in the first quarter than in the same quarter of 2004. Single-unit permits rose 2% year-to-date, multi-unit, 12%.

Total compensation costs (wages, salaries, and employer costs for employee benefits) for private-sector employees rose 0.6%, seasonally adjusted, from December to March, after advancing 0.8% the prior quarter, the Bureau of Labor Statistics (BLS) reported today. The rise in benefit costs slowed to 1.1% from 1.6% the previous quarter, while wages and salaries accelerated to a 0.6% gain from 0.4%. In contrast, total compensation for construction workers jumped to a 1.1% increase from 0.4%. All of the increase came in benefit costs (which are not broken out for construction), as wages and salaries continued to rise at a tame 0.3%.

Single-family house sales rose again in March. The government reported on Tuesday that new sales soared to an all-time high of 1,431,000 at a seasonally adjusted annual rate. That was up 12% from February and 13% from March 2004. The median sales price (price above which half of sales occurred) was $212,300, up 2% from a year earlier. The number of houses for sale at month's end was little changed over the past three months and represented a slim 3.6 months' worth at March selling rates, making a continued high level of single-family house construction likely in the near term. On Monday, the National Assn. of Realtors reported that existing-home sales climbed 1% in March to a rate of 6,890,000, third highest on record and 5% above the March 2004 rate. Condo and co-op sales were unchanged from February and 7% higher than in March 2004, while other single-family house sales rose 1% from February and 4% from the previous March. Condo prices jumped 16% over the past 12 months and other house prices, 11%. The inventory of houses for sale was flat and amounted to 4.0 months of sales at the March selling rate. Existing-home sales reflect contracts closed in the month and generally signed 45-60 days before, whereas new-home sales are recorded at time of signing.

Texas Industries Inc. said on April 21 it will expand and upgrade its portland cement plant in Oro Grande, California, according to a Reuters report on the Portland Cement Assn. website (www.cement.org). But on April 19, New York's Department of State denied a key zoning application by St. Lawrence Cement to replace a cement plant. The U.S. relied on imports for 23% of consumption in 2004, up from 20% in 2003, as consumption swelled by seven milion metric tons (6%) but production rose by just two million tons (2%), according to the U.S. Geological Survey (http://minerals.er.usgs.gov/minerals/pubs/commodity/cement/).

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