Vol. 6, No. 13

March 30-April 5, 2006

The Data DIGest
Ken Simonson, Chief Economist, Associated General Contractors of America
Phone: 703-837-5313 · Fax: 703-837-5407 · simonsonk@agc.org

Construction spending sets record in February; Mexican cement accord takes effect

Construction spending set a record for the eighth straight month in February, reaching a seasonally adjusted annual rate of $1.19 trillion, the Census Bureau reported on Monday. That was 0.8% higher than the upwardly revised January mark and was especially strong, given that the weather in February was thought to be less conducive to construction than the mild, dry conditions of January. For January and February combined, construction spending exceeded the totals for the same months of 2005 by 8.5%, with private nonresidential construction having the highest growth rate, for a change: 9.9%, compared to 7.8% for private residential and 8.4% for public construction. The January-February increases were particularly strong for shopping centers, 61% (after swelling 39% in 2005 as a whole and 26% in 2004); private hospitals, 22%, manufacturing and general commercial warehouses, 20% each. The previously lackluster office segment was up 18%. Both single- and multi-family new residential construction shot up more than 14%, although residential improvements fell 8.9%. Builders still have a big enough backlog of unbuilt houses and condos that residential construction spending may hold up for a few more months even if new-home sales have peaked. On the public side, there were double-digit increases for sewage and waste disposal, 28%; education, amusement and recreation, and public safety, all 13%; and water supply construction, 11%. Highway and street construction rose 8.2%.
The U.S.-Mexico cement agreement went into effect as scheduled on Monday. The agreement, which AGC had lobbied for, reduces the antidumping on Mexican cement from $26 per metric ton to $3 until March 31, then ends the duty. Imports of Mexican cement will be limited to three million metric tons for three years (up from two in 2005) and allocated by region and producer, although the President can boost the limit by 200,000 metric tons in the event of a natural disaster that increases the need for imported cement. Around the time the agreement was signed in March, Mexican producer Cemex announced it would add 1 million tons of capacity to its plant in Balconnes, Texas and add capacity near the Mexico-Arizona border, Cruz Azul said it intended to begin exporting from Mexico, and other firms contacted AGC for helping in getting permits to expand production.
The existing-home sales slowdown seems to be mild so far, except in the west, according to the February Pending Home Sales Index from the National Assn. of Realtors (NAR), released on Monday. The index, based on contracts signed in February, slipped 0.8% from an upwardly revised January total, and 5.2% from February 2005. NAR reported that the index jumped 6.8% from January but slipped 1.2% compared to February 2005 in the northeast; was even for the month and down 6% from a year ago in the midwest; was down 0.1% compared to both earlier months in the south; and fell 7.6% and 14.8%, respectively, in the west.
Manufacturers’ orders (excluding semiconductor manufacturing) edged up 0.2% in February, seasonally adjusted, following a 3.9% decline in January (initially estimated as -4.5%), Census reported on Friday. For January and February combined, total orders were up 7.5% from the same period of 2005. A sustained rise in orders can lead to more demand for factory construction to accommodate the added output. Orders for construction materials and supplies climbed 0.7% for the month and 10.5% year-to-date; orders for construction machinery fell 0.6% for the month but rose 4% year-to-date.
Purchasing executives in manufacturing who participated in the Institute for Supply Management’s March survey, released on Monday, reported “continued strength in new orders and production….Prices are still a major concern.” Items important to construction that were up in price included: aluminum and copper products, freight, and steel. Natural gas was reported down in price. No items were listed in short supply.
Seasonally adjusted nonfarm payroll employment by state rose from January to February in 41 states and the District of Columbia and decreased in nine states, the Bureau of Labor Statistics (BLS) reported on Thursday. From February 2005 to February 2006, employment rose in 48 states and DC and fell in Louisiana (-165,500) and Michigan (-38,900). The largest percentage increases were in Nevada, 6%; Idaho and Arizona, 5%; and Utah, 4%. Construction employment rose from the month before in 35 states, fell in eight, and was unchanged (or within 100 jobs) in seven states and DC. Compared to February 2005, construction employment rose in 45 states, fell in four plus DC, and was within 100 of prior-year totals in Vermont. The largest year-over-year percentage gain in construction employment was in Idaho (17%), followed by Nevada (14%), Arizona, Hawaii and Mississippi (14% each). Decreases occurred in Louisiana (-10%), DC (-5%), Michigan (-1%), Connecticut (-0.8%), and Minnesota (-0.5%). (Construction employment is combined with the small natural resources and mining sector in Delaware, DC, Hawaii, Maryland, and Nebraska.)
Flagler County, Florida, was the fastest-growing county in the U.S. for the second year in a row last year, Census reported on March 16. Of the 10 fastest-growing counties, all but 3rd-ranked Kendall, Illinois (near Chicago) were in the south or west, as were nine of the 10 with the highest loss rates in July 2004-July 2005.

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