September 15-21, 2003

Hurricane Isabel caused major disruptions from North Carolina through the mid-Atltantic region but is likely to have little long-term impact on the economy. Property insurance and federal disaster assistance will help minimize the economic blow. Construction impacts include some diversion of labor and materials into repair work, with resulting delay in some projects under way. State highway budgets, already under stress, may have to defer some new construction to free money for urgent repairs and overtime.

The latest readings on building permits and housing starts remained extremely high. The government reported Wednesday that builders took out permits at a seasonally adjusted annual rate of 1.89 million, 5% above the revised July rate and 11% above the August 2002 rate. For the first 8 months of 2003, permits for single-family homes are 7% ahead of the 2002 pace, permits for the small 2-4 unit category are 8% ahead, and permits for 5+ units are 1% below the year-ago level. Starts fell 4% in August from an upwardly revised level of 1.89 million units in July, a 17-year high. Year-to-date starts are 8% ahead of 2002 in the single-family category but down 19% and 3%, respectively, in the multi-unit categories.

Three business surveys show strong confidence. The National Association of Home Builders reported that its housing market index dipped slightly from “an exceptionally optimistic reading [71] in the previous month…to 68 in September,…still the second-highest reading since February of 2000.” Further, the subindex indicating sales expectations for the next six months stayed at a very high 78. A quarterly survey by Manpower Inc. of fourth-quarter hiring plans of nearly 16,000 employers shows “stronger job prospects than last quarter, breaking the downward trend in hiring intentions that has continued since the first quarter of 2003. Nonetheless, employers are still not as confident in their hiring projections as they were last year at this time ... . The Construction sector is expected to gain job momentum after hitting an 11-year low in last quarter's survey. The October-December outlook is relatively consistent with hiring intentions a year ago. Estimated job levels are strongest in the South and weakest in the West.” The National Federation of Independent Business reported record optimism in its monthly survey of 544 small-business owners.

Freddie Mac reported Thursday that mortgage rates fell roughly 15 basis points last week, bringing the 30-year fixed rate back down to 6.01%, below the year-ago level. In the past two weeks, the index has retraced more than one-third of its runup from 5.21% in mid-June to 6.44% two weeks ago. The one-year adjustable-rate index, which had risen more moderately, from 3.45% in late June to 3.98% two weeks ago, dropped to 3.81%.

Prospects remain favorable for low short-term rates. The Federal Open Market Committee voted Tuesday to hold its target for the federal-funds rate at 1%, explaining: 'The Committee perceives that the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. In contrast, the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level. The Committee judges that, on balance, the risk of inflation becoming undesirably low remains the predominant concern for the foreseeable future. In these circumstances, the Committee believes that policy accommodation can be maintained for a considerable period.”

As for current inflation, the Bureau of Labor Statistics (BLS) reported Tuesday that the consumer price index for all urban consumers rose a seasonally adjusted 0.3% in August and 2.2% for the past 12 months. The “core” index, which omits food and energy costs, rose just 0.1% in August and 1.3% for the 12 months.

Even the medical-care index was up only 3.9% for the 12-month period. Yet the Office of Personnel Management announced Tuesday that the average health-care premium for federal employees and retirees will climb 10.6% next year. That suggests the double-digit increase in employer health-care costs is a result more of increased utilization than of price jumps.

BLS also reported Tuesday that real (inflation-adjusted) average weekly earnings decreased by 0.3% from July to August, seasonally adjusted, and by 0.2% over the past 12 months. For construction workers, there was an increase of 0.1% for the month and 0.6% for the 12-month period, as hourly earnings rose 2.2%, weekly earnings rose 2.7%, but inflation eroded 2.1% from those gains.

Industrial production at factories, mines, and utilities rose 0.1% in August, seasonally adjusted, the Federal Reserve reported Monday. But manufacturing output edged down 0.1% after three straight gains. Production of construction supplies rose 0.3%, following an 0.2% gain in July, but was down 2.8% from August 2002. Capacity utilization at factories, an early indicator of future demand for factory construction, slipped 0.2% to 72.7%, compared to 74.3% a year ago and compared to the 30-year average of 80%.

The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics.