Current Construction Data, Indicators for Near Term Tell Tale of Two Industries, AGC Economist Says
"In the first four months of 2003, the value of construction put in place, as reported today by the Census Bureau, was about 1% above last year's total. But this aggregate masks a 10% jump in residential construction, nearly offset by a 7% drop in nonresidential construction."
Simonson noted that these percentage changes are based on a classification system that Census has used for a year alongside the traditional method highlighted in its press release. The older set of numbers will be discontinued after next month's release, Census said.
"Construction put in place data are tricky to interpret at this point," Simonson cautioned. "The new groupings and seasonal adjustment factors provide different totals from the old method for seasonally adjusted data, and the extremely snowy and stormy weather so far this year may have distorted some totals, especially home construction.
"Several other reports today suggest that residential and market segments will continue to diverge for the next few months, if not longer," Simonson said. "For instance, the Office of Federal Housing Enterprise Oversight reported that its house price index, covering resales and refinancings, was up 6.5% from the first quarter of 2002 to the same quarter of 2003. That is consistent with last week's reports from the Census Bureau and the National Association of Realtors on new- and existing-home sales, respectively. Therefore, I would expect single-family construction put in place, which has risen 13% so far this year, to remain strong.
"Conversely, today the Institute for Supply Management reported that its monthly survey of manufacturing conditions shows continuing widespread weakness despite a few signs that the slump may end soon. That suggests there will be no short-term relief from the downturn in manufacturing construction, which has sagged 28% year-to-date from last year's already depressed level," Simonson continued.
"In a third report today, PricewaterhouseCoopers says it anticipates no real recovery in the hotel industry for the next 12 quarters. It is no wonder lodging construction put in place is off 17% so far this year," Simonson said.
Simonson pointed to three bright spots in the year-to-date nonresidential data: educational, health care and water supply. "The large educational market is up by 2.6% in the first four months," he said, "with a 4% gain in public construction outweighing an identical slippage in the smaller private educational market. So far this year, public college construction is the engine for these gains. But I think primary and secondary school construction will hold up better as state budget cuts start to erode higher education construction.
"Health care construction has soared 13%, on top of 15% growth last year," he said. "I don't see any letup yet in overall health spending, and so I expect health-related construction will also remain robust.
"Water supply construction is up 12% so far this year," Simonson observed. "Detailed Census data show that is evenly split between 'plant' and 'line' construction, both up 15%, with pump station construction close behind, at 9%. I assume new housing construction is driving the related infrastructure investment. If so, I have high hopes for this growth to hold up."