Plumbing and Mechanical

Construction outpaces overall job gain; good signs appear for several building types<br>July 8

July 8, 2005
Nonfarm payroll employment rose by 146,000 in June, seasonally adjusted, the Bureau of Labor Statistics (BLS) reported today. The unemployment rate dipped to 5% for the first time since September 2001. BLS Commissioner Kathleen Utgoff noted, “Employment continued to trend upward in several component industries, including architectural and engineering services….Employment growth continued in construction in June [the 16th straight seasonally adjusted record month], with a sizable gain (13,000) in heavy construction. Construction employment has increased by 282,000 over the year.” That was a 4% increase, more than double the 1.6% gain in overall nonfarm employment. All five BLS construction employment categories rose over the year: residential buildings, 7%; nonresidential buildings 2%; residential specialty trades, 4%, nonresidential specialty trades, 3%; and heavy and civil engineering, 5%. Average hourly earnings in construction rose to $19.42, seasonally adjusted, up just 23 cents per hour (1.2%) over the past 12 months but 21% higher than the average for all nonsupervisory or production workers on private nonfarm payrolls.

Several reports this week augur well for retail, warehouse, and distribution construction. The International Council of Shopping Centers estimated yesterday that sales at chain stores open at least a year rose an average of 5.3% at 70 chains in June, the best showing of any month since May 2004. Target, J.C. Penney, Kohl's, and American Eagle Outfitters all raised their earnings estimates. Today the Census Bureau reported that sales of merchant wholesalers (except manufacturers' sales branches and offices) in May were 7% higher than in May 2004, and inventories were 10% higher, suggesting a need to build more warehouses.

The Institute for Supply Management on Wednesday released its June survey of nonmanufacturing purchasing executives. Of the 14 industries reporting growth, construction was third and retail trade fourth. The same industries ranked second and third for highest rates of growth of new orders. The survey also found price increases for construction/construction services and for numerous items important to construction: asphalt/asphalt products, building/construction materials/supplies, concrete/concrete poles, diesel fuel, steel, fabricated pipe and steel, gypsum board/products, lumber, and roofing materials/shingles. Other respondents listed diesel fuel and steel products as down in price. Steel/steel products were listed in short supply.

Favorable indicators also appeared for office and apartment home construction. “The office market expanded strongly in the second quarter as companies leased more space, a sign they expect to expand their work forces,” the Wall Street Journal reported today, citing a survey of the top 67 office markets by Reis Inc., a real estate research firm. “Office-building vacancies tumbled to their lowest level in three years, and rents registered their second quarterly increases in a row after four years of declines….New construction remained well in check, with just 6.6 million square feet of office space completed during the quarter, compared with a peak of 44.2 million square feet in the fourth quarter of 2001….Across the country, the best markets are concentrated on the coasts, and poorest markets are in the Midwest. Washington…continued to have the lowest vacancy rate in the nation, at 7.5%. New York City and Long Island tied for second place at 9.7% [followed by] San Bernardino and Orange County, California….At the other end of the market, Dallas continued to lag far behind the rest of the country, with vacancies at 24.6%. Denver was second-worst, at 20.2%, followed by Cleveland, Memphis, and Columbus, all at about 20% vacancies.”

The vacancy rate for the top 67 metropolitan apartment markets “continues to climb out of a four-year slump, posting another quarter of declining vacancies and rising rents,” the Journal reported on Wednesday, citing another Reis report. The rate fell from 6.7% in the first quarter to 6.4% in the second. Effective rents, the amount collected minus repairs and concessions to tenants, rose an average of 0.5% in the second quarter after gaining 0.6% in the first quarter. “Developers are rushing to turn rental apartments into condominiums, thus reducing the rental supply. Fewer new apartment buildings are being built because most new construction is giving rise to condos….Local apartment markets that experienced the greatest declines in vacancy rates from the first to the second quarter, according to Reis,” included: Louisville, with a decline from 9.2% to 8.2%; Miami, from 5% to 4%; Omaha, from 7.3% to 6.5%; Sacramento, from 6.9% to 6.2%; and Las Vegas, from 4.9% to 4.2%. Markets that saw the greatest increase in vacancy rates included New Orleans, from 6.2% to 6.7%; Greensboro/Winston-Salem, from 8.5% to 9%; Kansas City, from 7.9% to 8.2%; Memphis, from 10% to 10.4%; and Denver, from 9.0% to 9.3%.”

The National Association of Realtors reported on Wednesday that its recently introduced pending home sales index slipped 2% in May from a downwardly revised April figure. Still, the two months were the third and second highest in the five-year history of the index. The May level was 3.7% ahead of May 2004.