Mixed impacts from Katrina appear for construction activity, materials, and labor
Sept. 14 - Sept. 19

September 20, 2005
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Mixed impacts from Hurricane Katrina on supplies of construction inputs are continuing to appear. AGC CEO Stephen Sandherr on Friday wrote to Commerce Secretary Carlos Gutierrez to urge an immediate suspension of the anti-dumping duty on Mexican cement to ease shortages worsened by the closure of ports that accounted for 12% of U.S. imports in the first half of 2005. Sandherr also wrote to oppose quotas, which Commerce was reported to have proposed to Mexican negotiators in talks on Tuesday. Several contractors reported to AGC that prices for PVC pipe had doubled overnight; one said his supplier warned of a further 100% increase at the end of the month. Shortages appeared likely for resins used to make a variety of construction plastics, because oil and natural gas production in the Gulf and refinery operations onshore are still far below pre-storm levels. Shortages of galvanized steel may result from the closure of a plant that produces half of nation's hydrogen. In response to continuing shortages of low-sulfur, undyed highway diesel fuel, the Internal Revenue Service and Environmental Protection Agency extended until October 5th the waiver that allows production, importation and use by highway vehicles of high-sulfur, dyed fuel. (See www.irs.gov and www.epa.gov for conditions.) But futures prices dropped for crude oil and gasoline in the face of weakening demand and the release of supplies from U.S. and foreign strategic reserves. One steel supplier told AGC that an expected October 1 increase in steel prices had been trimmed to $20 per ton from an earlier $30-40. With an estimated 150,000 ruined vehicles in Louisiana and Mississippi, there could be a surge in scrap steel supplies. Wood products prices may fall below levels that would have occurred in the absence of Katrina if the millions of trees that were knocked over by the storm can be harvested and the region's lumber mills be brought back into service in time.

The impacts on demand for construction activity are less clear. Although President Bush pledged Thursday night to support rebuilding of New Orleans, it is too early to tell how much of the city must be cleared and demolished first, what steps need to be taken to make rebuilding safer, and how it will be paid for. A Washington Post survey of refugees in Houston found only half intend to return, implying there will be more demand for construction in states where refugees, businesses, or activities such as conventions move to.

Two weeks before Katrina hit the Gulf Coast, there were 1.92 million employees on nonfarm payrolls in Louisiana and 1.14 million in Mississippi, the Bureau of Labor Statistics (BLS) reported on Friday in its regular monthly release on payroll employment by state. Louisiana had 117,000 construction employees; Mississippi, 51,000. In both states, construction employment was up by 3% from August 2004, a little less than the 4% rise nationally. Over that span, construction employment increased in 46 states, led by Idaho, +16%, Nevada, +13%, and Oregon and Arizona, +12% each. Employment stayed within 100 jobs of the year-ago level in Iowa and the District of Columbia and fell in three states: Michigan and South Carolina, -2% each, and Missouri, -0.3%. But initial unemployment insurance claims jumped by 70,000 in the first full week after the storm and Labor Day.

Industrial production in mining (including offshore oil and gas wells), utilities, and manufacturing rose 0.1% in August, seasonally adjusted, the Federal Reserve reported on Wednesday. Output at mines decreased 0.6% and at utilities, 0.5%. The Fed said, “Hurricane Katrina severely curtailed output in the Gulf Coast region at the end of August; hurricane-related production declines were most evident in oil and gas extraction, industrial chemicals manufacturing, and petroleum refining.” Manufacturing output of construction supplies rose 0.7%, following a 0.6% rise in July and a 0.8% drop in June. Capacity utilization in factories, which along with output can be an indicator of the need to construct more, inched up to 78.4% of capacity from 78.3% the previous two months, slightly below the 1972-2004 average of 79.8%.

The consumer price index for all urban consumers (CPI-U) rose 0.5% in August, seasonally adjusted, which brought the 12-month increase to 3.6%, BLS reported on Thursday. The monthly rise was led by a 5% jump in energy costs. BLS noted, “Data for the CPI are collected throughout the entire reference month. Over 90% of the prices for August were collect prior to August 29th, the date when Hurricane Katrina struck the Gulf Coast.” The “core” index, which omits food and energy costs, was up 0.1% for the month and 2.1% over the past 12 months. The CPI for urban wage earners and clerical workers (CPI-W), which is used to adjust wage rates in many construction and other union contracts, rose 0.6% last month and 3.8% over the past 12 months.

Real (net of inflation) average hourly earnings fell 0.5% from July to August, seasonally adjusted, BLS reported on Thursday. A 0.1% rise in hourly earnings was more than offset by the 0.6% increase in the CPI-W. Before seasonal adjustment, hourly earnings in construction rose 1.3% from August 2004 to $19.59 per hour in August 2005, 22% above the average for all private-sector nonsupervisory or production workers. But construction wages fell 2.5% over the 12-month period after taking inflation into account.

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