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Construction jobs, value put in place jump; input costs, housing signal trouble ahead

By Ken Simonson
March 4, 2005
Nonfarm payroll employment surged 262,000, seasonally adjusted, in February, nearly double the average gain for the three previous months, the Bureau of Labor Statistics (BLS) reported today. BLS noted, “Construction employment rose by 30,000 in February” to a record 7,116,000. “This followed no change in January, when unusually severe weather conditions in some areas of the country limited construction activity. Since its most recent low point in March 2003, the industry has added 458,000 jobs. Employment growth among residential specialty trade contractors (16,000) and residential builders (5,000) accounted for the bulk of February's gain.” Over the past 12 months, growth has occurred in all five of BLS's construction subgroups: 68,000 (8%) in residential building, 77,000 (4%) in residential specialty trades, 32,000 (4%) in nonresidential building, 84,000 (4%) in nonresidential specialty trades, and 14,000 (2%) in heavy and civil engineering, for a total gain of 275,000 (4%). Yet average hourly earnings in construction have risen just 0.7% in the past 12 months, to $19.34 in February, seasonally adjusted, vs. a 2.5% increase (to $15.90) in average earnings for all nonsupervisory or production workers. This suggests the supply of construction labor is still plentiful. BLS also cited “sizable increases” in architectural and engineering services, a favorable omen for future construction.

The value of construction put in place rose 0.7% in January to $1.047 trillion to a seasonally adjusted annual rate, but not adjusted for inflation, following a 1.2% increase (revised from an initial 1.1%) in December, the Census Bureau reported on Tuesday. The 2004 total was revised up to an even $1 trillion. The January total was the 12th straight record. Relative to December 2004 and January 2004, respectively, private nonresidential construction rose 1.2% and 10%, public construction moved up 0.8% and 8.5%, and private residential construction, the subsector most vulnerable to harsh weather, climbed 0.4% and 12%.

Multiple reports of price increases for construction materials and supplies appeared this week. The Institute for Supply Management (ISM's) monthly survey of nonmanufacturing purchasing executives, released Thursday, listed short supplies in February of “cement/concrete/cement products; roofing materials; roofing shingles; stainless steel; and steel” and price increases since January for aluminum, building materials, copper, diesel fuel, lumber, plastic resin, PVC, roofing materials and shingles, steel and steel products, and transportation/freight charges. ISM's survey of manufacturing purchasing executives, released Tuesday, included many of the same items but also listed steel scrap as down in price. The Wall Street Journal reported today, “Arcelor SA, one of the world's largest steelmakers, caved in to a big price increase from a major supplier of iron ore, in a move likely to put further upward pressure on steel prices….Arcelor said it would pass the price increase on to its customers….the cost of low-grade iron ore for Arcelor-as well as for the typical steel maker-will rise about $20 to about $40 a ton of steel made. The cost of coking coal, another key steel ingredient, will rise $50 to roughly $110 a ton of steel made….Japanese steel makers also said further increases in steel prices will be inevitable as raw-materials costs continue to soar.” The Journal reported on Wednesday, “Caterpillar Inc. said it's raising general prices for machinery and engines by between 1% and 5%.” The Financial Times reported on Thursday, “U.S. importers can expect another year of supply bottlenecks and rising supply-chain costs because of congestion in west coast ports, transport industry executives and analysts have warned….The Pacific Maritime Assn., which represents west coast ports, predicts import volumes will increase by a further 14% on average this year-the same rate as last year….Executives from Union Pacific and BNSF, two of the main rail operators serving the west coast, said they were building new cargo-handling facilities.” But the ISM nonmanufacturing report quoted an executive as saying “Railroad transportation inefficiencies, fuel surcharges and rate increases are concerns.”

Hints of a softening home-sales market appeared this week. Sales of new single-family houses in January slumped 9% from December at a seasonally adjusted annual rate, Census reported Monday. As noted above, sales may have been depressed by severe weather not captured by normal seasonal adjustments. Of greater concern, the number of unsold new houses, seasonally adjusted, rose for the seventh straight month, and was 17% higher at the end of January than a year earlier. Long-term fixed mortgage interest rates rose for the third straight week, Freddie Mac reported on Thursday. The value of houses sold or refinanced with loans involving Freddie or Fannie Mae rose 11% in the four quarters through the end of 2004 but rose just 1.7% in the fourth quarter, the Office of Federal Housing Enterprise Oversight reported on Tuesday (www.ofheo.gov).

Manufacturers' orders edged up 0.2%, seasonally adjusted but not adjusted for inflation, in January, following a 0.5% increase in December, Census reported today. Orders for construction materials and supplies and for construction machinery each fell 1%, after rising 2.3% and 0.5%, respectively, in December.

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Chief Economist, Associated General Contractors of America 703-837-5313; fax -5406; www.agc.org

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