Plumbing and Mechanical

January 4-10, 2006 - Construction employment dips; manufacturing orders mixed; price rises continue

January 19, 2006
Seasonally adjusted construction employment slipped by 9,000 in December, the Bureau of Labor Statistics (BLS) reported on Friday. It was the first monthly drop in nearly two years. Over the past 12 months, industry employment swelled by 246,000 or 3.5%, more than double the 1.5% growth rate for total nonfarm payroll employment. Employment in all five BLS construction categories grew: residential specialty trade contractors, 5.4%, residential building, 4.5%; heavy and civil engineering, 4.2%; nonresidential building, 2.4%; and nonresidential specialty trade contractors, 1.5%. Seasonally adjusted average hourly earnings in construction rose to $19.69 in December, a gain of 2.1% over the course of the year and 18% more than the average for all private-sector production or nonsupervisory employees.

The seasonally adjusted rates of turnover in construction moved down from last summer through November, while the rate of job openings remained trendless, according to the monthly Job Openings and Labor Turnover survey data that BLS released today. In November, hiring equaled 5.4% of the end-of-month employment total, compared to a rate of 6% in August. The separations rate dropped from 6.2% to 5.1% over that span, and openings remained steady at 1.8%. The all-industry rate of openings was 2.8%, little changed over the past six months.

Seasonally adjusted new orders for manufacturers (excluding semiconducting manufacturers) jumped 2.5% in November, following a gain of 1.7% in October and a drop of 1.4% in September, the Census Bureau announced on Wednesday. For the first 11 months of 2005, orders were 7.8% higher than in the same months of 2004. Orders for construction materials and supplies climbed 1.7%, following a drop of 0.4% in October and an increase of 1.9% in September; year-to-date orders were up 6.1%. Orders for construction machinery were down 11% in November, up 13% in October, and down 16% in September; year-to-date orders were up 21%.

The Institute for Supply Management released its December survey of purchasing executives for nonmanufacturing entities on Thursday, with the comment, “Concern about the relatively high level of energy prices has lessened somewhat, although the effects of high energy prices are still being felt through price increases and surcharges for other products. While the prices index continues to decline this month, it is still in a historically high range”. Items relevant to construction that were reported up in price included construction services as well as aluminum, asphalt/asphalt products, concrete, construction materials, copper products, diesel fuel (also reported down in price), freight charges/shipping costs and fuel-related surcharges, plastics/plastic products and polyvinyl chloride, gypsum board, and steel. Short supplies were reported for construction labor, cement/cement products, copper/copper wire, gypsum products, insulation, and steel.

The Federal Reserve, Federal Deposit Insurance Corporation, Comptroller of the Currency, and Office of Thrift Supervision jointly announced this afternoon that they were issuing for comment proposed guidance on sound risk management practices for concentrations in commercial real estate lending. “The agencies have observed that some institutions have high and increasing concentrations of commercial real estate loans where repayment primarily is dependent on rental income or from the proceeds of the sale, refinancing, or permanent financing of the property,” the announcement stated. “Such concentrarions may expose institutions to unanticipated earnings and capital volatilty in the event of adverse changes in the general commercial real estate market.”

Although the announcement seems to suggest a level of concern about such lending, “The U.S. office market continued to improve in the fourth quarter and for all of 2005,” according to data from Reis Inc., a New York-based commercial real estate research firm quoted in Friday's Wall Street Journal. “The fourth quarter marked the seventh straight quarter of vacancy declines, with rental rates showing their strongest annual growth in five years, real-estate executives said. The U.S. vacancy rate [covering the 69 largest markets other than New Orleans] dropped in the fourth quarter to 14.7%, down from 15% in the third quarter and 16.3% in the 2004 fourth quarter…One factor benefiting existing office space is the high cost of new construction. As a result, 35.4 million square feet of new office space was constructed in 2005, up from the 30.8 million the previous year but sharply lower than the 126.1 milion completed in 2001, Reis reported.” Washington had the lowest vacancy rate, 7.2%; followed by Orange County, California; Palm Beach; Manhattan; and San Bernardino. “Cities where landlords saw the most improvement in negotiating their rents were San Francisco, Fort Lauderdale, Orange County, Miami, and San Diego….By contrast, [in] Detroit, the office market weakened in 2005….Greenville, South Carolina, had the highest vacancy rate, with 24.1%, followed by Dallas, Rochester, Cleveland, and Detroit….Dallas, though still saddled with a vacancy rate of 23.6%, absorbed more than three million square feet for the year and showed its first positive effective rent growth since 2000.”