FOMC sees economic pickup; AIA, MHC show mixed scene; most states lose jobs

"Information received since the Federal Open Market Committee [FOMC] met in August suggests that economic activity has picked up following its severe downturn," the Committee opined today. "Conditions in financial markets have improved further, and activity in the housing sector has increased....With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time." Consequently, the FOMC voted unanimously to stick with current monetary policy. "While there have been occasional signs of optimism over the last few months, the overwhelming majority of architects are reporting that banks are extremely reluctant to provide financing for projects, and that new equity requirements and conservative appraisals are making it even more difficult for developers to get loans," American Institute of Architects Chief Economist Kermit Baker said in releasing the latest Architecture Billings Index today.  "Until the anxiety within the financial community eases, these conditions are likely to continue." The index, which measures the difference in rising less falling billings among responding firms, was at 41.7 in August, down from 43.1 in July; anything below 50 is a net decrease. Among subsectors, however, the 45.6 reading for commercial/industrial practices tied the highest level since January 2008, and the index for residential (mainly multifamily) practices rose for the sixth time in eight months, to 43.4. The readings for institutional and mixed practices were virtually unchanged at 37.5 and 41.4. (Sector indexes are three-month averages.) The index is an indicator of future demand for building construction. New construction starts in August rose 2% from July at a seasonally adjusted annual rate, but fell 33% year-to-date (YTD), comparing the first eight months of 2009 combined to the same span in 2008, McGraw-Hill Construction (MHC) reported on Friday, based on its own data collection. "The upward push came from nonbuilding construction, comprised of public works and electric utilities, which has shown an up-and-down pattern for much of 2009." Nonbuilding construction jumped 13% for the month but fell 18% YTD. Within the category, highway construction was up 12% for the month and 4% YTD; bridge construction, -9% and +7%; water supply construction, 38% vs. "diminished contracting" YTD. Electric utility construction zoomed 120%, including a "$600 million power plant in Arizona, plus the start of three large wind farms" in Pennsylvania, $400 million; North Dakota, $250 million; and Iowa, $150 million. Residential building slipped 1% in August and 40% YTD. Single-family housing grew 1%, the sixth gain in the past seven months, but was down 11% YTD. Multifamily housing fell 13% in August. Nonresidential building fell 3% for the month and 37% YTD. "Much of the pullback occurred in the institutional sector, which had been boosted in July by groundbreaking for several large hospital and medical center projects....Running counter in August was the educational building category, which climbed 9% [and] the transportation terminal category, increasing 160% as the result of $680 million related to foundation work at the Fulton Street Transit Center in New York. The commercial categories in August included a moderate decline for warehouses (down 7%), but also gains for hotels (up 1%) and stores (up 15%), both of which still continued to be very depressed in terms of their level of activity. The office building category in August registered a surprising 63% gain, lifted by the start of four large projects....The manufacturing plant category [soared] 206% from an extremely depressed amount in July [boosted by] the start of a $500 million upgrade to a semiconductor plant in New Mexico." Seasonally adjusted unemployment rates rose in August in 27 states and the District of Columbia, fell in 16 and were unchanged in seven, the Bureau of Labor Statistics (BLS) reported on Friday. Over the past 12 months, the unemployment rate rose everywhere, reaching a national average of 9.7%, compared to 9.4% in July and 6.2% in August 2008. Nonfarm payroll employment fell for the month in 42 states plus D.C. and increased in eight states. Over the year, employment increased only in D.C., 2,100 jobs or 0.3%; and North Dakota 700 or 0.2%. Construction employment (combined with mining and logging in six states and D.C., where the latter industries have small totals) rose in August in 16 states, fell in 30 and was unchanged in four plus D.C. The biggest monthly percentage gains were in Idaho, 3%; Delaware and Nebraska (both with combined data), 2% each. Compared to August 2008, construction employment fell everywhere except in North Dakota, 4%; and Louisiana, 3%. The biggest 12-month percentage losses were in Arizona, -27%; Nevada, -25%; Connecticut, Kentucky and Tennessee (combined data), -22% each. The consumer price index (CPI) for all urban consumers rose 0.4% in August, seasonally adjusted, but was 1.5% lower than in August 2008, BLS reported on September 16. The CPI for urban wage earners and clerical workers (CPI-W) used to adjust many union contracts in construction and elsewhere, rose 0.6% for the month but fell 1.9% over the year. Industrial production (IP) in manufacturing increased 0.6%, seasonally adjusted, in August, following an upwardly revised 1.4% gain in July, the Federal Reserve reported on September 16. Capacity utilization in manufacturing rose to 66.6% of capacity in August from 66.1% in July and 65.1% in June but remained far below the 1972-2008 average of 79.6%. Together, high IP and capacity utilization can signal future demand for plant construction. IP of construction supplies was unchanged in August, after rising 0.7% in July.