GDP Drops Despite Strength In Nonres Construction

November 3, 2008
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Jobs, revenues fall in most states.

Real (net of inflation) gross domestic product fell at a seasonally adjusted annual rate (SAAR) of 0.3% from the second quarter to the third quarter, the Bureau of Economic Analysis reported on Thursday. Real gross private domestic investment in nonresidential structures rose 7.9% (SAAR), down from 18% in the second quarter but the 12th straight quarter in which this category of GDP has outpaced overall economic growth. Real government gross investment in structures increased 3.7%, down from 9.5%. Real gross private residential investment fell 19%, worse than the 13% decline in the second quarter and the 11th consecutive quarterly drop. Price indexes rose 7.2% (SAAR) for private nonresidential structures and 14% for government structures, but fell 1.2% for private residential investment.

Unemployment rates were higher in September than a year earlier in 349 of the 369 metro areas, lower in 14 and unchanged in six, BLS reported on Wednesday. Areas with rising unemployment can be a source for construction workers. Elkhart-Goshen, Indiana, had the largest rate increase, 5.7 percentage points, followed by Rocky Mount, North Carolina, 3.9 points, El Centro, California, and Yuma, Arizona, 3.8 points each. Among the 310 areas for which nonfarm payroll data were available, 140 reported 12-month employment gains, 164 had losses and six were unchanged. Gains can indicate areas with greater demand for construction. The largest 12-month percentage increases were in Grand Junction, Colorado, 4.2%; Laredo, Texas, 3.7%; Morgantown, West Virginia, 3.5%; McAllen-Edinburg-Mission, Texas, 3.3%; and Odessa, Texas, 3%.

BLS issued corrected state employment data for September on October 24. Compared to August, seasonally adjusted nonfarm payroll employment rose in nine states and fell in 41 states and the District of Columbia. Compared to September 2007, employment increased in 24 states plus D.C. and fell in 26. The largest year-over-year percentage gains were in Wyoming, 2.8%; Texas, 2.4%; D.C., 2%; and South Dakota, 1.6%. The largest percentage declines were in Rhode Island, -2.6%; Arizona, -2.2%; Michigan, -1.8%; Georgia, -1.5%; and Florida, -1.4%. Construction employment for the month rose in six states plus D.C., fell in 36 and was unchanged (or within 100 of prior levels) in eight. Compared to September 2007, construction employment rose in seven states plus D.C., fell in 41 and changed by 100 or less in Arkansas and North Dakota. The largest year-over-year percentage gains in construction were in Oklahoma, 5%; Texas, 3%; D.C. and Wyoming, 2% each. The largest percentage losses were in Arizona, -17%; South Carolina, -14%; Utah, -13%; Florida, -12%; and Oregon, -11%.

“Although state revenue collections have been slowing for at least a year,” the Center on Budget and Policy Priorities (www.cbpp.org) reported on Friday, data collected from states that have reported July-September receipts “are the first to show steep declines in revenue across a variety of types of taxes across a range of states from all regions of the country. Of the 15 states surveyed here, the median state experienced a 5.9% decline in total tax revenue after adjustment for inflation. Only Michigan, which enacted a major tax increase, experienced revenue growth; revenues in all others declined.” Given states’ balanced-budget mandates, falling receipts can quickly lead to deferred or canceled construction.

Higher-education construction, which has grown rapidly for several years, may be slowed by falling state revenues and by investment losses in endowments and donors’ portfolios. Cornell University announced that “all projects that do not have construction contracts will be put on hold for the next 90 days as university officials reassess the capital budget, Crain’s New York Business online reported on Friday. “A construction project for research facilities at Weill Medical College that is currently under design will be permitted to complete that phase of work before being put on hold….Cornell’s measures anticipate upcoming state budget cuts, fewer donations, higher tuition fees and a reduction in the university’s $6 billion endowment…”

One small construction niche that is gowing is hydropower. “Pennsylvania Power and Light is spending $350 million to build a sleek new powerhouse at Holtwood [Pennsylvania], the first new hydroelectric plant in the East in two decades,” USA Today reported on Thursday. “The addition is part of the nation’s biggest hydropower expansion since the 1980s. Utilities are proposed more than 70 projects that would boost U.S. hydroleectirc capacity by at least 11,000 megawatts, or 11%, over the next decade, according to MWH, a hydro engineering firm, and Hydro Review magazine.”

The employment cost index for total compensation (wages, salaries and benefits) rose 0.7%, seasonally adjusted, for all civilian workers, from June to September, the same rate of increase as in the previous two quarters, the Bureau of Labor Statistics (BLS) reported on Friday. The compensation increase in construction slowed to 0.5% from 0.7% in the second quarter and 1.2% in the first.

“The premiums charged in most lines of commercial insurance have abruptly stopped falling and will gradually start to rise,…Evan Greenberg, chief executive of Ace Ltd., said during the Zurich-based company’s third quarter earnings call Wednesday,” the Wall Street Journal reported on Thursday. He said “catastrophes and financial-market declines have drained capital and are beginning to drive a need to raise premiums.”

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