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Manufacturing, homebuilding, public construction heat up; private nonresidential sags

December 2, 2003
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The value of construction put in place in October rose 0.9% from September's upwardly revised total to a seasonally adjusted annual rate (SAAR) of $922 billion, the Census Bureau reported today. October's figure was the fifth straight increase and fourth consecutive monthly record. Both private residential and public construction set records, but private nonresidential construction fell to the lowest level in six years. Through the first 10 months of 2003, overall construction was up 3.7% compared to January-October 2002, led by a 9% gain in residential and a 3% rise in public construction, which more than offset a 6% drop in private nonresidential.

“Economic activity in the manufacturing sector grew in November for the fifth consecurtive month, while the overall economy grew for the 25th consecutive month,” according to the monthly survey of manufacturing supply executives released today by the Institute for Supply Management. The ISM's manufacturing index climbed to 62.8 from 57 in October as the new-orders index jumped 9.4 points to the highest level in nearly 20 years, and the production index rose 5.7 points.

Both gains were the seventh in a row and both showed increases in 16 of 20 manufacturing industries. Even the employment index “reversed a 37-month trend of contraction as the index registered 51 compared to 47.7 in October….An employment index above 47.8, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.”

The report reinforces the release last Wednesday from Census on durable goods orders for October, which jumped 3.3%, seasonally adjusted, following an upwardly revised 2.1% increase in September. Year-to-date orders were 1.6% higher than in the first 10 months of 2002.

According to the latest “Beige Book” compilation of reports from businesses in the 12 Federal Reserve districts, released Wednesday, “Reports received from the District Banks suggest that the economy continued to expand in October and early November. Descriptions of the pace of growth varied somewhat. But improvements appeared to be reasonably broadly based, with most districts noting growth in a number of industries. Overall, wages and prices of finished goods and services remained fairly stable, although some increases in input prices were noted.

Most districts once again characterized commercial real estate markets as currently weak. However, the outlook was a bit more upbeat, with strengthening anticipated next year in many districts. Vacancy rates remained at high levels across most markets; however, there were scattered reports of small improvements in leasing or construction activity in the New York, Cleveland, Atlanta, Chicago, Minneapolis, and San Francisco districts. St. Louis noted 'booming' hospital construction. Richmond reported a 'noticeable increase' in office and retail leasing but sluggish activity in industrial space. Philadelphia, Boston, and Kansas City reported generally stable markets. Kansas City, St. Louis, Minneapolis, and Dallas noted expectations of more favorable markets in some areas next year.”

Several estimates of home price changes emerged in the past week. “Average U.S. home prices increased 5.6% from the third quarter of 2002 through the third quarter of 2003,” the Office of Federal Housing Enterprise Oversight reported today ( The calculation was based on repeat sales or refinancings of single-family houses whose mortgages have been purchased or securitized by Fannie Mae and Freddie Mac. The data base thus excludes high-risk loans and loans above those companies' lending limits.

Freddie Mac announced Tuesday that its lending limit would rise 3.4% from $322,700 currently to $333,700 in January, based on October-to-October changes in the average house prices, as published by the Federal Housing Finance Board's monthly survey of lenders for new and existing homes. The Census Bureau announced Wednesday that the median new-home price in October was $190,900, up 0.9% from the median price of new homes sold in October 2002. Sales totaled 1,105,000 (SAAR), down 3.5% from September but 10% higher than a year ago.

The National Assn. of Realtors reported Tuesday that existing-home sales dropped 4.9% in October to 6,350,000 (SAAR), still the third-highest level on record. The median price was $172,400, up 8.2% from a year ago. The National Assn. of Home Builders reported Tuesday that the median price of condos sold in the first nine months of 2003 rose 15% compared to the same period of 2002, while sales of new and existing condos and co-ops rose almost 13%.

The Bureau of Economic Analysis (BEA) revised up its estimate for third-quarter growth in inflation-adjusted gross domestic product (real GDP) from 7.2% (SAAR) as reported a month ago to 8.2% Tuesday. Today's construction report from Census, which contains upward revisions of $2.5 billion each for construction in August and September, may nudge the GDP estimate higher still. BEA reported Wednesday that personal income rose 0.4% from September to October, following three straight monthly increases of 0.3%. Personal consumption expenditures were flat following changes of -0.3% (September), +1% (August) and +0.9% (July).

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