GDP, McGraw-Hill data show investment in structures slowed in 4th quarter, December

By Ken Simonson

Gross domestic product net of inflation (real GDP) rose at a seasonally adjusted annual rate (SAAR) of 4.0% in the fourth quarter of 2003, the Bureau of Economic Analysis announced today. BEA cautioned that this “advance” estimate tends to be revised over the next two months by an average of 0.6 percentage points up or down. This was solid growth but broke a string of rising real GDP gains (1.3% a year ago, then 2.0%, 3.1%, and 8.2%). For the year, real GDP rose 3.1%, up from 2.2% in 2002 and 0.5% in 2001. Investment in nonresidential structures (including mining and petroleum structures) in the fourth quarter rose at a SAAR of 0.3% before inflation (vs. 0.6% in the third quarter, and fell 3% after accounting for inflation (vs. -1.8%). For the year, real investment in nonresidential structures fell 4.7% after fallling 18.4% in 2002 and 2.5% in 2001.

The broadest measure of inflation, the GDP price index, rose just 1.1%, down from 1.6% in the third quarter and level with the second-quarter rate. In a commentary this morning, Wachovia's John Silvia noted that consumer durables and business equipment “faced deflation in 2003. Other sectors (consumer services) faced steady inflation at 2.8% while several sectors faced rising inflation (exports and imports, nondurable goods, and state and local spending).” The price index for nonresidential structures accelerated to a 4.1% inflation rate from 2.7% in the third quarter and 1.1% in the second.

The value of new construction contracts signed in December dropped 2% to a $533 billion SAAR, McGraw-Hill Construction reported Thursday. (McGraw-Hill figures cover about 60% of the total value of construction put in place, which the Census Bureau will report on February 2. The McGraw-Hill data measure the full value of new contracts; Census counts the current month's value of ongoing work.) ”Single-family housing [increased] 3% in December, while multifamily housing retreated 19%. For all of 2003, residential building climbed 12%...single-family up 12% and multifamily up 10%....

“Nonresidential building in December retreated 3%. School construction, the largest nonresidential structure type by dollar volume, fell 10% for the month…For 2003 as a whole, nonresidential building fell 3%..., a decrease less severe than the 9% drop in 2002. Weakness was still present for commercial construction, which was down 6% in 2003 due to an 11% decline for offices and a 16% decline for warehouses….Of significance, the commercial sector in 2003 was cushioned by the growth reported for stores [7%] and hotels [8%]….The institutional side of the nonresidential market in 2003 was generally weaker, reflecting the impact from a tighter fiscal climate. Although school construction was able to rise 3% in dollar terms, helped by more renovation work, square footage for this structure type fell 6% during 2003. Construction of healthcare facilities dropped 7% in dollar terms….Reduced construction was also present for public buildings (courthouses/ detention facilities), down 6%; transportation terminals, down 7%; amusement-related projects, down 9%; and churches, down 13%. The long-depressed manufacturing plant category posted a dollar volume gain of 8% in 2003, helped by a growing number of plant upgrades. The 2003 level for manufacturing construction was still 59% below the most recent peak in 1997.

“Nonbuilding construction in December dropped 9% from the strong voume reported for the previous month…For all of 2003, nonbuilding construction fell 9% to $90.8 buillion, reflecting a 6% decline for public works and a 30% plunge for electric utilities. Highway and bridge construction registered a 3% reduction in new starts, a noteworthy change after the steady growth during the 1999-2002 period. On the environmental side, sewers managed to rise 1%...but both water supply systems and river/harbor development were down 13%.”

Total compensation costs for civilian workers rose 0.7% from September to December, seasonally adjusted, moderating from the 1.0% gain from June to September, the Bureau of Labor Statistics (BLS) reported Thursday. Benefit costs increased 1.2%; wages rose just 0.5%. For the year, compensation costs in private industry rose 3.4%, vs. 3.7% in the year ended in December 2002. Compensation costs in construction rose 0.6% in the fourth quarter and 0.8% in the third, with wages rising just 0.3% (0.9% in the third quarter). For the year, compensation in construction rose 2.5% in 2003 and 3.1% in 2002.

Sales of new single-family houses in December were at a SAAR of 1,060,000, down 5% from the upwardly revised November rate, the government reported Wednesday. For the year, sales rose to 1,086,000, up 11.5% from the previous annual record set in 2002. The median sales price rose 3.1% for the year.