Nov. construction spending, job losses were widespread; wage increases diminish

Nonresidential construction starts fell 8.2% in December, compared to December 2008, and 6.9% for all of 2009, compared to 2008, Reed Construction Data reported today, based on information it compiled. Building construction was down 27% for the month and 17% for the year. Starts on civil works (highways, bridges, water/sewage, dams/marine, airports and other) rose 27% and 16%, respectively. Chief Economist Jim Haughey commented, "Nonresidential building starts weakened in December after a strong November. Usually, there is a seasonal upturn in December so the 20% month-to-month decline is a significant weakening. There were relatively few starts of large developer-financed projects as well as a nearly 40% dip in hospital starts. Nonetheless, nonresidential building starts in December matched the monthly average for 2009. The December results for the civil market are distinctly different. December starts were unchanged from November and above the monthly average for 2009. Highway starts matched the November total. There was another large gain in water/sewer starts, likely the delayed impact of the stimulus program. The 20% jump in December pushed water/sewer starts to a record high level." Seasonally adjusted nonfarm payroll employment fell by 85,000 (-0.1%) in December after rising in November (albeit by a statistically insignificant 4,000) for the first time since the recession began in December 2007, the Bureau of Labor Statistics (BLS) reported on Friday. Construction employment fell by 53,500 (-0.9%), accounting for more than 60% of total losses for the month, and by 934,000 (14%) for the year, with declines in all five BLS subcategories. Declines in nonresidential employment (-1.0% for the month, -15% for the year) have been outpacing those in residential (-0.8% and -12%). Heavy and civil engineering employment, the segment most subject to winter weather anomalies, rose in November, which was reportedly warmer and drier than average, but paid back the gains and more with a steep 2.2% loss in December, which was colder and snowier than usual in many areas. In a small hopeful sign for future construction demand, architectural and engineering services employment rose by 4,000 (0.3%) for the month (but was down 95,000 or 6.7% from December 2008). The unemployment rate was 9.7% overall, not seasonally adjusted (10.0%, seasonally adjusted), and 22.7% for construction, highest of any industry. Average hourly earnings for production and nonsupervisory workers rose three cents overall to $18.40 in December, seasonally adjusted (up 2.2% over 12 months) and fell three cents in construction to $22.77 (up 1.6% over 12 months). Recent reports paint a bleak picture for industrial, office and apartment construction, as rents fell and vacancies rose in 2009. "We saw a dramatic fall in [industrial] construction starting in 2009, as completed projects were not replaced by new ones," Jared Sullivan, economist for CBRE Econometric Advisors (www.cbre-ea.com) wrote on Monday." With the situation in the capital markets still tenuous, it is unlikely that this trend will reverse itself in the near future....but there are still markets with the right industrial composition or logistical connections, where it may make sense to build if capital is available....this year will see the lowest levels of construction on record, dating back to 1980. With vacancy rates nationwide remaining elevated and rental rates falling, it will be some time before industrial construction rebounds in all but the healthiest markets." One healthy market is Boston, which "has held up relatively well compared to its five-year historical average, thanks to the market's strong concentration of biotech firms. A diverse market, Boston's construction pipeline has been and continues to be a mixture of R&D facilities, warehouses and manufacturing facilities." Office rents "declined in almost of the 79 American cities tracked by Reis Inc., a New York-based research firm, in the fourth quarter of 2009," the Wall Street Journal reported on Friday. Nationwide, effective rents-the net amount tenants pay after landlord concessions-fell close to 9%. It was the largest decline since Reis began compiling data in 1981. "Meanwhile, the vacancy rate rose to 17%, the highest since 1994." Washington had the lowest vacancy rate, 10.7%, followed by New York, 11.5%. "Apartment vacancies hit a 30-year high in the fourth quarter, and rents fell as landlords scrambled to retain existing tenants and attract new ones," the Journal reported on Thursday. "The vacancy rate ended the year at 8%, the highest level since Reis...began its tally in 1980. Rents fell 3% last year, according to Reis, led by declines in San Jose, Seattle, San Francisco and other cities that had brisk growth until the recession....During the fourth quarter, vacancies increased in 52 markets, while they improved in 17 and stayed flat in 10. Vacancies increased most sharply for the year in Tucson, Charlotte, and Lexington, Kentucky....Landlords were also hit last year by competition from a wave of new supply that hit the market. The 120,000 units that came onto the market last year, including some busted condo projects that had to be converted to rentals, represented the most new construction since 2003, according to Reis...The credit crunch has frozen most new development, which means that new apartment completions should fall by half in 2011." The Institute for Supply Management reported on Wednesday that purchasing executives in nonmanufacturing sectors were split on whether business activity improved from November to December. Executives in seven sectors (out of 18 total) reported growth but nine, including construction, reported contraction. Construction was one of three sectors reporting an increase in order backlogs. Four sectors, including construction, reported an increase in prices paid in December. Of items used in construction, copper, copper fittings, copper pipe, and diesel fuel were reported up in price; no price declines were reported by respondents in any sector. Manufacturing purchasing executives reported price increases for aluminum, aluminum products and steel as well as copper in a survey released on January 4.