The value of nonresidential construction starts in January climbed 6.3% from December and 20% from January 2009, Reed Construction Data (RCD) reported on Thursday, based on data it compiled. "January starts increased 10% for nonresidential buildings from December but only 2% for heavy construction projects. Both highway and water/sewer starts fell slightly, but there were offsetting gains for airports and power projects," Chief Economist Jim Haughey wrote. "Starts jumped 47% for commercial buildings, reversing the large drop in November....Manufacturing starts, which are heavily energy-related, plunged to only 15% of the 2009 monthly average....Commercial starts continue to be restrained by the inability of some developers to obtain credit. This problem will worsen at least until mid-2010 as lenders continue to withdraw from real estate under pressure from rapidly rising commercial mortgage defaults. RCD expects this restraint to be more than offset by the rising expected profitability of commercial property when it is completed nine months or more ahead. By contrast, the availability of financing for institutional buildings will not improve in the first half of 2010. Stimulus plan funding will not be significant until late in the year. Funding in regular budget appropriations is now declining at all levels of government. Hospital and higher education generate their own funding and will not be impacted by reduced government funds."
Agencies vary in how quickly they have spent construction funds under the stimulus legislation that President Obama signed on February 17, 2009. The Environmental Protection Agency said that as of January 28, EPA assistance agreements had been executed for $3.6 billion (94%) of the Clean Water State Revolving Fund (SRF) Recovery Act dollars and $1.7 billion (93%) of the Drinking Water SRF funds. An internal Federal Highway Administration memo on February 1 showed that states and territories had obligated (committed to specific projects) $23.8 billion (90%) of the $26.4 billion available for highways and had paid out $6.0 billion (23%). The Energy Department reported on January 25 that it had awarded $25.2 billion (77%) of its $32.7 billion but had spent only $2.1 billion (6%). The President announced awards to 31 states totaling $8 billion for rail projects on January 29, but no contracts had been signed.
The advance estimate of retail sales in January rose 0.5%, seasonally adjusted, from December and 5.3% from January 2009, the Census Bureau reported on Friday. The December estimate was revised up to - 0.1% from November, following an advance estimate of -0.2%. Sustained increases in retail sales can signal rising demand for store construction. However, much of the construction may take the form of tenant improvements and new signage for vacated stores. Among recent announcements, Movie Gallery is closing "approximately 760 Movie Gallery, Hollywood Video and Game Crazy stores;" Borders is closing 181 Waldenbooks stores; and MyerEmco Stereo in the D.C. area is shutting down. In contrast, hhgregg Inc. announced on February 4, "due to the Mid-Atlantic construction schedule running ahead of schedule, the Company is raising its annual gross capital expenditure guidance for fiscal 2010 [ending March 31] to $55 million to $60 million, from a previous range of $45 million to $50 million. [The company] expects to open between 40 and 45 new stores in the Mid-Atlantic region during fiscal 2011. Over half of these stores are expected to open during the first fiscal quarter of 2011, with the vast majority of the remaining stores expected to open prior to the calendar 2010 holiday selling season." Dollar General announced on December 10, "In 2010, the Company plans to open approximately 600 new stores and to remodel or relocate a total of approximately 500 stores."
Seasonally adjusted sales of existing single-family houses, apartment condos and co-ops in the fourth quarter of 2010 increased 24% from the third quarter and 27% from the year-earlier quarter, the National Association of Realtors reported on Thursday. Sales rose for the quarter in the District of Columbia and all but two states (Louisiana, -5%, and Virginia, -9%), as 32 states experienced double-digit gains, led by Idaho (86%), Alaska (43%) and Minnesota (40%). Sales were higher than in the fourth quarter of 2008 everywhere except in California (-7%). All but three states had double-digit annual increases, with the largest gains in Vermont (68%), Florida and Idaho (59% each) and D.C. (56%).
Over time, rising sales of existing homes can add to the demand for homebuilding and related nonresidential construction.
"Home builders are ramping up speculative construction to attract last-minute home buyers who want to tap a soon-to-expire tax credit," the Wall Street Journal reported on Wednesday, citing limited "spec" building by KB Homes, Charter Homes and Meritage Homes. "Private-equity firms are stepping into the vacuum left by banks' flight from lending to small and midsize home builders," the Journal reported on February 3. "...a new San Diego company, Presidio Residential Capital...so far has made two loans, totaling about $17 million, to home builders and expects to make more soon....Key Corp.'s Real Estate Capital unit, which manages a $100 million private equity fund focused on real estate...has already taken equity in land-development ventures with regional builders under profit-sharing arrangements."
In the December Job Openings and Labor Turnover Survey, released by the Bureau of Labor Statistics on Tuesday, construction had the lowest seasonally adjusted job-opening rate of any sector, 0.9 job openings per 100 employees, compared to 1.9 for the entire nonfarm economy. The hiring rate in construction was the highest of any sector, 6.1 vs. an all-industry rate of 3.1, but the total separation rate for construction was also highest, 7.4 vs. 3.2.
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