The value of construction put in place in October set a record for the fourth straight month, at a seasonally adjusted annual rate of $1.132 trillion, the Census Bureau reported on Thursday. That was 0.7% higher than the upwardly revised September rate of $1.124 trillion (originally estimated at $1.120 trillion). The October figure was 8% higher than in October 2004. For the first 10 months of 2005, construction was 9% higher than in the same months of 2004. Over that span, private residential construction increased 11%, private nonresidential 5%, and public 8%. The biggest gains among large private subsectors were in multi-retail (general merchandise, shopping centers, and shopping malls), 25%; manufacturing construction, 24%; new multi-family, 21%; and hospitals, 13%. Office construction was up 5% year-to-date. Electric power construction was down 17%. Among public subsectors, sewage and waste disposal construction rose 13%, highways and streets, 12%; and educational, 7%. Census did not estimate any increases or decreases due to hurricanes. The Census numbers are not adjusted for price increases; thus, not all of the increases represent additional activity.
One indication of the split between “real” (net of inflation) growth and price increases was in Wednesday's release from the Bureau of Economic Analysis on gross domestic product (GDP) in the third quarter. Real GDP grew 4.3% (revised from an initial estimate of 3.8%), the fastest clip since the first quarter of 2004. Real private investment in nonresidential structures (including mines and wells, which Census does not include in construction) rose 2.7%, matching the second-quarter growth rate. The price index for private nonresidential structure investment jumped at a 15% annual rate, vs. 10% in the first and second quarters.
The latest “Beige Book” compilation of informal reports from businesses on conditions from early October to mid-November in the 12 Federal Reserve districts (named for their headquarters cities) was released by the Fed on Wednesday. The summary included these comments about nonresidential real estate and construction: “Commercial real estate markets strengthened in many Districts. Atlanta, San Francisco, Philadelphia, and Kansas City reported that demand for commercial real estate has continued to improve. Boston, however, reported that commercial real estate in the Boston area remains flat. Office vacancy rates in most areas of the St. Louis and San Francisco Districts fell and demand for office space picked up in the Philadelphia, Dallas, and Kansas City Districts. Commercial agents expect continued improvement in the office market for the Kansas City District. The New York District reported that lower and midtown Manhattan's office markets continued to strengthen, while most suburban markets slackened moderately. Industrial vacancy rates fell in much of the St. Louis District, and contacts reported that demand for industrial space was on the rise in the Philadelphia and Dallas Districts. Commercial construction has improved in the Chicago District, while commercial construction was generally flat in the Richmond District. The St. Louis District reported that commercial construction remains active.” The section on manufacturing noted, “Atlanta, Chicago, and Dallas reported strong demand for construction-related products.” The report also commented: “San Francisco reported tight labor market conditions for workers with specialized skills in the financial, construction, and health-care services sectors. Atlanta reported labor shortages in storm-damaged areas, especially in the construction industry….Consumer prices remained stable or experienced generally modest increases, but most Districts reported increasing input prices, particularly of energy-related products, construction and raw materials, and transportation. Fuel surcharges have become common in many Districts.”
On Thursday, the Institute for Supply Management reported that purchasing agents in manufacturing companies listed the following construction-related items as rising in price in November: steel, copper, plastic resins, and aluminum.