Revised estimate for structures investment boosts GDP growth; home sales stay high

February 25, 2005
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Economic review for Feb. 25, 2005

Real (net of inflation) gross domestic product grew 3.8% at a seasonally adjusted annual rate in the fourth quarter, the Bureau of Economic Analysis reported today. This “preliminary” estimate was considerably higher than last month's “advance” estimate of 3.1%. Real investment in private nonresidential structures, including mines as well as construction, rose 1.2% for the quarter rather than falling 4.1% as previously estimated. In the third quarter, such investment dropped 1.1%. The price index for private nonresidential structures climbed 10.8% (previously estimated at 10.3%), up from 9.8% in the third quarter.

“Existing-home sales, revised with improved methodology, were essentially flat in January but remained at historically high levels,” the National Assn. of Realtors (NAR) reported today. “A slight decline in single-family home sales was offset by a record monthly level of condo sales, which just came off its ninth consecutive record year….Total housing inventory levels declined 5.8% at the end of January with 2.09 million existing homes available for sale, which represents a 3.7-month supply at the current sales pace-a record low.” Condominium and cooperative housing sales accounted for 12.6% of transactions in January. Existing condo sales rose 2.3% for the month and 22% from a year ago to a record seasonally adjusted annual rate of 858,000 units in January. The median condo price was $203,700, up 15% from a year ago. Single-family home resales declined 0.5% in January to a seasonally adjusted annual rate of 5.94 million units,12.5% above the pace in January 2004. The median single-family home price was $186,900 in January, up 10% from January 2004.

The consumer price index for all urban consumers (CPI-U) rose 0.1% in January, seasonally adjusted, the Bureau of Labor Statistics (BLS) reported Wednesday. Since January 2004, the CPI-U has risen 3%. The CPI for urban wage earners and clerical workers (CPI-W), which is used to adjust many construction and other wage contracts, also rose 0.1% for the month and 3% over 12 months. The “core” CPI-U, which omits food and energy costs, rose 0.2% for the fifth straight month, and 2.3% for the 12-month period.

Real average weekly earnings of production or nonsupervisory workers fell 0.2%, seasonally adjusted, in January from December, and fell 0.7% from January 2004, BLS reported Wednesday. Average hourly earnings, before seasonal adjustment or deflation by the CPI-W, reached $15.99, up 2.8% from January 2004. In construction, average hourly earnings stood at $19.09 in January, 19% higher than the all-industry average but up just 0.4% from January 2004.

Mass layoffs (those involving 50 or more workers from a single site) jumped in January, BLS reported Thursday. The data were presented for the first time on a seasonally adjusted basis, which showed the January figure was the highest in a year and involved the largest number of workers since October 2003. Data for industries other than manufacturing were not shown on a seasonally adjusted basis, however. BLS noted, “Construction accounted for 18% of events and 13% of initial claims filed in January 2005, with layoffs mainly in highway, street, and bridge construction.” Although these percentages are far higher than construction's share of employment, layoffs are common in winter in the highway segment and may have spiked if the weather was unusually bad.

“The world's largest iron-ore supplier, Brazil's Cia. Vale do Rio Doce [CVRD], pushed through a 71% price increase in negotiations with Japanese steelmakers, setting the stage for more-expensive steel and steel products globally,” the Wall Street Journal reported Wednesday. “North American steelmakers are expected to be less affected because they often have their own iron-ore suppliers and often operate on longer-term contracts. But contract prices often include escalator clauses based on the world price of iron ore or of steel. That could mean an increase in North American iron-ore prices of as much as one-third of the world market price. Steel prices were expected to remain near current high levels for the first half of the year, then taper off during the second…The benchmark hot-rolled coil [used to make construction products, pipes and other items] was fetching about $750 a ton on the spot market in September, more than double its price the year before, though it had fallen to $640 as of last month.” AGC members have not reported steel-price decreases yet, although increases are rarer and less steep than in the first nine months of 2004.

“Toyota Motor Corp. will likely add two more assembly plants in North America by the end of the decade,” the Journal reported Tuesday. “Toyota also is finishing a big new factory in Texas that will start next year….The Toyota executives said its No. 7 and No. 8 plants are likely to be picked from locations the company considered in the recent site-search that zeroed in on San Antonio….northern Mississippi, western Arkansas, an area near Memphis, and…Ontario.”

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