Credit rescue and tax package passes; construction jobs, private nonres spending fall

The Emergency Economic Stabilization Act passed the House, 263-171, today and President Bush signed it into law immediately. The bill authorizes the Treasury to buy up to $700 billion of mortgages and other assets affecting the balance sheets of financial institutions. AGC members sent more than 4,000 letters, emails and calls, overwhelmingly in support of quick action. Data DIGest readers had reported many cases of projects stopped because credit was unavailable. If signed, the bill should help private, state and local borrowers regain access to credit markets for construction. The Senate added a slew of tax provisions that were included in the final bill and should help specific types of construction, including extension of wind and other alternative energy production tax credits; 15-year depreciation for leasehold, retail and restaurant improvements; and numerous preferences for specific locations or property types. However, a credit market revival is unlikely to suffice to reverse downturns in jobs and spending that showed up in recent months. Seasonally adjusted nonfarm payroll employment tumbled by 159,000 in September and 519,000 (-0.4%) over 12 months, although the unemployment rate held steady at 6.1%, the Bureau of Labor Statistics (BLS) reported today. Construction firms shed 35,000 jobs for the month and 464,000 (-6.1%) over the past 12 months. Residential building and specialty trade contractors lost 13,000 jobs in September and 341,000 (-11%) over 12 months; nonresidential building, specialty trade and heavy and civil engineering employers cut 22,000 workers for the month and 122,000 (-2.8%) over 12 months. However, BLS may be understating residential job losses because many employees of “residential” specialty trade contractors are now working on nonresidential sites. Based on the Census Bureau’s report on Wednesday that residential spending declined 28% from August 2007 to August 2008, it is likely that residential employment also fell roughly 28%, not 11%. The difference, 550,000 workers, implies that nonresidential employment actually rose by 425,000 (10%). Such a gain is more consistent with the 11% increase in nonresidential spending over that span. It also helps to explain why average hourly earnings for production and nonsupervisory workers rose more in construction from September 2007 to September 2008 (4.5%) than in the overall private sector (3.4%). Construction spending in August totaled $1.072 trillion at a seasonally adjusted annual rate, virtually unchanged from July but down 5.9% from August 2007, Census said. July and June totals were revised down. Private nonresidential spending fell 0.8%, following a 1.1% drop in July, but was up 13% from August 2007. Public construction rose 0.8% for the month and 7.7% over 12 months. Private residential spending rose 0.1% for the month but was down 28% over 12 months. However, the residential gain was attributable solely to the volatile and hard-to-measure spending on improvements, which rose 9.8% for the month. Both single- and multi-unit new construction dropped 4.2% for the month, indicating no improvement from past declines. Of the 11 private nonresidential subcategories, nine declined compared to July and five were lower than in August 2007. The two largest public subcategories, education and highways, rose 0.3% and 3.9% for the month but face severe funding problems as property and fuel tax revenues shrink. “California is close to running out of cash to fund day-to-day government operations and is unable to access routine short-term loans that it typically relies on to remain solvent,” the Los Angeles Times reported today. “The state of California is the biggest of several governments nationwide that are being locked out of the bond market by the global credit crunch…Plans by several state and local governments to borrow in recent days have been upended by the credit freeze. New Mexico was forced to put off a $500-million bond sale, Massachusetts had to pull the plug halfway into a $400-million offering, and Maine is considering canceling road projects that were to be funded with bonds.” Virginia is preparing further cuts in transportation spending, because of falling car-sales excise and fuel taxes, after lopping $1.1 billion out of its six-year plan earlier this year, the Washington Post reported today. Construction materials prices are moving both up and down. The Institute for Supply Management (ISM) reported today that respondents to its monthly survey of purchasing executives in nonmanufacturing sectors listed the following items important to construction as rising in price in September: building materials, diesel fuel (also listed as down in price), freight charges and fuel surcharges, roofing shingles, steel and steel products. Copper items were listed as down in price. On Wednesday, ISM reported that purchasing execs at manufacturing firms listed copper products and steel as both up and down in price; plastics and plastic resins were up; aluminum and steel products were down. “North American market sources,” Steel Business Briefing reported today, “report that HRC [hot-rolled coil steel] prices have dropped substantially for all buyers as the market dives, putting prices for many small- to mid-sized customers at roughly $860-890/s.t [short ton, from] over $1,000/s.t a little more than a month ago. Service center executives say end-users are now dictating prices and the struggle to move steel out of warehouses to raise cash, often at a loss, is accelerating.” Steel futures for U.S. Midwest domestic HRC will start trading on the New York Mercantile Exchange (Nymex) on October 19. On Thursday, crude-oil futures on the Nymex closed at an eight-month low, with November futures for West Texas intermediate closing at $93.97. The cash price for copper was $2.65, 29% below the year-ago level.