Residential Falls, Commercial Gains: A Look At 3Q Economy
Ken Simonson, chief economist for the Associated General Contractors of America, observed that there are still many industries that are generating construction activity, particularly manufacturing, energy and power, business and leisure travel, and hospitals. “[These facilities] should sustain further growth in construction jobs,” Simonson said. However, the good news hid the not-so-good news, as the report also showed a slide in residential building and specialty trades employment, which together lost 9,000 jobs for the month. Simonson expects these categories will “continue to hemorrhage jobs once current projects are completed.”
According to the Institute for Supply Management, crude oil, gasoline and diesel fuel prices continue to reek havoc on businesses, as the price of crude on the New York Mercantile Exchange closed (at press time) at a record $77.03 July 14. It's also been reported that copper and brass mill shapes rose 81 percent over 12 months, and steel mill product prices rose 11 percent over 12 months.
The producer price index for plastic construction products was up 19 percent over 12 months, though industrial natural gas, the feedstock for many plastics, plunged recently in June (6.7 percent), suggesting lower plastics prices may be ahead. And while some shortages have been reported (due in part to high demand nationally, as well as the ever-increasing demand in China), facilities are operating at capacity to meet needs.
For overall U.S. economy, the Federal Reserve released its “Beige Book,” which summarizes comments received from businesses and other contacts outside the Federal Reserve system, and reports from all 12 Federal Reserve districts.
The most recent Beige Book generally indicated continued economic growth during June through mid-July, with numerous individual reports pointing to evidence that the pace of growth has slowed. Several districts characterized the overall pace of economic growth as “moderate” or “modest.”
Activity in residential real estate markets cooled in most parts of the country, the Beige Book summarized, but various districts reported an ongoing pickup in demand for commercial space. Financial institutions mirrored overall economic activity: commercial and industrial lending expanded further, while residential mortgage lending declined.
For businesses, vigorous competition has held price increases down, overall, and some Beige Book contacts noted reliance on productivity increases to maintain profit margins in the face of rising input costs. This has caused labor markets to tighten a bit further in most areas. While any increases in base wages and salaries remained moderate, they were relatively rapid for workers with specialized skills in a wide range of sectors.
As for consumer spending, most districts reported sales gains for department stores, but smaller retail establishments were “limited” or “below retailers' expectations.” They attribute this general retail-spending trend to being held down in part by high gas prices, which have squeezed households' budgets, and reduced the frequency of shopping trips. On a side note, sales of automobiles and light trucks were “flat” to “down.” Inventories reportedly were “undesirably high” for SUVs and light trucks in some areas.