Real (net of inflation) gross domestic product (GDP) increased 3.2% in the first quarter at a seasonally adjusted annual rate, a slowdown from the 5.6% gain in the fourth quarter of 2009, the Bureau of Economic Analysis reported today. Investment in structures was a major drag on GDP growth. Real investment in private nonresidential structures (including mineshafts and wells) decreased 14%, after dropping 18% in the fourth quarter. Real residential fixed investment decreased 11%, in contrast to an increase of 3.8%. Real government investment in structures dropped 16%, following a decline of 14%. Prices remained subdued for GDP and finished structures. The price indexes for GDP and private nonresidential structures each rose just 0.9%; for residential investment, 1.3%; and for government structures, 1.0%. The Federal Reserve's Federal Open Market Committee had noted at the conclusion of its meeting on Wednesday, "Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining."
New construction starts, as compiled by McGraw-Hill Construction (MHC), were "essentially unchanged" in March at a seasonally adjusted annual rate compared to February. "Improved activity in March was shown by...nonresidential building and housing," MHC reported on April 21. "The third sector, nonbuilding construction (public works and electric utilities), retreated in March after its elevated amount in February. Through the first three months of 2010, total construction on an unadjusted basis was...up 2% compared to the same period a year ago," with residential building up 3%, nonresidential building down 13% and nonbuilding construction down -4%.
Indicators for future nonresidential construction remain negative. The American Institute of Architects (AIA) reported on April 21 that its March Architecture Billings Index, the difference between the number of architecture firms reporting a rise vs. a drop in billings compared to a month earlier, was 46.1, up from a reading of 44.8 the previous month. "Though this score reflects a continued decline in demand for design services (any score above 50 indicates an increase in billings), it is the highest score since August 2008," the AIA said. Sub-indexes by practice specialty were all below 50 and very similar: multi-family residential and institutional, 47 each; mixed practice and commercial/industrial, 45 each. A quarterly survey of 68 corporate and trade association economists, released on Monday by the National Association for Business Economics (NABE), found demand had risen on net at more respondents' firms for the third straight quarter, with rising expectations for the firms and for GDP compared to the January survey. However, expectations for investment in structures among the 44 firms that answered the question were negative on net for the seventh straight quarter, NABE said.
Hotel-tracking firm Lodging Econometrics (LE) reported today that its "Construction Pipeline" decreased 42% by project count and 49% by room count from the peak in the second quarter of 2008 to the first quarter of 2010, with projects and rooms under construction down 61% and 67%, respectively; starts expected in the next 12 months down 50% and 57%; and early planning down 6% and 19%. "Though the [quarter-over-quarter] rate of decline is slowing," LE wrote, "New project announcements into the pipeline continue at low levels for a combination of reasons: a trough-like operating environment, the inability to secure financing and the prospects for a more attractive investment opportunity through the acquisition of existing assets."
The producer price index (PPI) for finished goods jumped 1.1% from February to March, not seasonally adjusted (0.7%, seasonally adjusted), and 6.0% over 12 months, the Bureau of Labor Statistics (BLS) reported on April 22. The PPI for inputs to construction industries, a weighted average of materials used in every type of construction, plus items consumed by contractors such as diesel fuel, rose 1.3% and 4.8%. By segment, the increases were: highway and street construction, 1.6% and 8.5%; other heavy construction, 1.6% and 5.3%; nonresidential buildings, 1.3% and 4.4%; multi-unit residential, 1.0% and 3.0%; and single-unit residential, 1.0% and 2.8%. The increases were driven by jumps in the PPIs for several materials: diesel fuel, 8.9% and 62%; steel mill products, 3.4% and 11.3%; lumber and plywood, 2.2% and 14%; and plastic construction products, 1.4% and 2.7%. Gypsum products rose 1.0% for the month but were still down 9.1% from a year before. Conversely, two PPIs fell for the month but jumped from a year ago: copper and brass mill shapes, -3.3% and 47%; and aluminum mill shapes, -1.5% and 13%. The materials price rise worsened the squeeze on contractors, which continued cutting prices for finished buildings and subcontracting work: new warehouse construction, -0.2% and -5.7%; industrial buildings, -0.5% and -5.3%; offices, -0.3% and -4.8%; schools, 0 and -2.2%. The PPIs for new and remodeling nonresidential building work by electrical contractors fell 0.3% and 3.5%; roofing, -0.4% and -1.9%; concrete, +0.4% and -1.9%; and plumbing, -0.3% and +0.5%.
"In March, 322 metropolitan areas reported over-the-year decreases in nonfarm payroll employment, 45 reported increases, and five remained unchanged," BLS reported on Wednesday. AGC calculated that construction employment (combined by BLS with mining and logging in most metros to prevent disclosure of data about industries with few employers) rose in March compared to a year earlier in 11 metros out of 337 for which data is available, fell in 310 and was unchanged in 16. The largest numerical and percentage rise in construction jobs were in Eau Claire, Wisconsin (800 jobs, 40%); the largest declines were around Monroe, Michigan (-39%, 900 jobs) and Chicago (-25,000 jobs, 19%).
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