Housing continues to lead the economy. Yesterday the government reported that housing starts jumped 13% from August to September to a seasonally adjusted annual rate of 1,843,000. That is 16% above the September 2001 figure. Equally encouraging, building permits climbed 3.7% for the month and 10% compared to the year-ago month. Permits for single-unit homes rose by 3% for the month (12% year-to-year), for 2-4 unit housing by 8% (41% year-to-year), and for 5+ units by 4% (-2% year-to-year).

Industrial production, seasonally adjusted, slipped 0.1% in September and 0.3% in August, following gains of 0.5% in July (revised from 0.4%) and 0.6% in June, the Federal Reserve reported Thursday. The full series includes manufacturing, utilities (which are strongly affected by swings in demand for air conditioning) and mining. The manufacturing index displays an even more worrisome downtrend: -0.3% in September, -0.2% in August (revised from -0.1%), 0.4% in July and 0.6% in June. Further, capacity utilization in manufacturing stood at 74.2% in September, down from 74.4% in August and barely above the 73.7% level of a year before. Both consistent output growth and substantial capacity utilization (the 1967-2001 average for manufacturing is 80.9%) are needed to stimulate factory construction. The Fed noted: "The production of business equipment dropped 1.7% in September. A key contributor to this decline was a pullback in the production of industrial and other equipment, especially construction and farm machinery." The index for construction supplies rose 0.3% in September, vs. 0.9% in August, -1.5% in July and 0.7% in June.

Although utilities used a much higher 88.2% of capacity in September (slightly above the 1967-2001 average of 87.6%), a report this week from Standard and Poor's showed more than 100 recent downgrades of utility credit ratings, making the outlook for power plant construction very dim.

In another sign that the economy is still weak (aside from housing), the Census Bureau reported Tuesday that sales of manufacturers, wholesalers and retailers climbed just 0.2% in August, seasonally adjusted, following a 1.3% jump in July. Inventories slipped 0.1%, following a 0.4% rise in July. Compared to August 2001, inventories are down by 3.6% and the inventory/sales ratio is at a record low of 1.34. These figures imply demand will remain low for warehouse or storage construction.

Highway spending got at least a temporary boost this week. Congress sent the President another stopgap "continuing resolution" that keeps highway spending at the same $31.8 billion annual level as in the fiscal year that ended September 30. The bill contained language that AGC sought reversing an Office of Management and Budget that spending would be cut to a $27.7 billion rate. The stopgap bill runs until November 22.

Congressional negotiators on a bill to provide a federal backstop for terrorism insurance apparently reached agreement last night, although language has not been released yet. AGC had sought legislation to help overcome mounting cancellations of construction projects involving high-profile sites.