Nonres spending rises in November but outlays and prices appear likely to fall in 2009

Construction spending in November totaled $1.078trillion at a seasonally adjusted annual rate, down 0.6% from October and 3.3% from November 2007, the Census Bureau reported on Monday. The October and September totals were revised up by a combined $16 billion, and the average of the past three months now shows an increase from June-August, despite the deterioration in credit and broader economic conditions since early September. The decrease was concentrated in private residential spending, which tumbled 4.2% for the month and 23% compared to November 2007. Private nonresidential spending rose 0.7% and 10%; public spending climbed 1.4% and 7.9%. Among the largest nonresidential categories, educational construction rose 0.6% and 5.5%; highways and streets, 1.3% and 7.7%; manufacturing, 3.4% and 61%; office, 1.1% and 10%; and power, 5.3% and 27%. Commercial (retail, warehouse and farm) fell, -1.3% and-13%. These increases seem sure to reverse, however. Most economic indicators in the past few months have declined sharply, often at the steepest rates and/or to the lowest levels in decades. For instance, the Institute for Supply Management (ISM) reported on Friday that its monthly survey of purchasing executives in manufacturing found, “Manufacturing activity continued to decline at a rapid rate during the month of December. The decline covers the full breadth of manufacturing industries, as none of the industries in the sector report growth at this time. New orders have contracted for 13 consecutive months, and are at the lowest level on record going back to January 1948. Order backlogs have fallen to the lowest level since ISM began tracking the Backlog of Orders Index in January 1993. Manufacturers are reducing inventories and shutting down capacity to offset the slower rate of activity.” In another indication of the poor state of manufacturing, Census reported today that new orders from U.S. manufacturers (excluding semiconductor manufacturing) fell for the fourth straight month in November, by 4.6%, seasonally adjusted, following a downwardly revised 6.0% decline in October. Orders for construction materials and supplies dropped 3.6%. Orders for construction machinery, a volatile series, climbed 2.9% after plunging 36% in October. Materials prices continue to plunge following the sharp run-up of the first half of 2008. ISM said today that its index of prices paid by non-manufacturing purchasing executives fell to the lowest level since the index began in 1997. Respondents listed the following items relevant to construction as down in price in November: construction; copper pipe, fittings and products; diesel fuel; fuel surcharges; PVC pipe and fittings; steel and stainless steel products and plate. Respondents to the manufacturing survey listed aluminum, copper and steel as both up and down in price. No items were listed in short supply in either survey. Last night, the Energy Information Administration (www.eia.doe.gov) reported that the national average retail price of on-highway diesel fuel was $2.29 per gallon, a drop of 3.6 cents from a week before, 32% from a year earlier, and 52% from the record set on July 14, 2008. Diesel is used in construction for earthmoving and other offroad equipment, for vehicles such as concrete mixers and pumpers and dump trucks, and is an important component of the cost of producing and delivering many materials. Asphalt prices also are dropping but not as far. For instance, the price index that the New Mexico Department of Transportation issued on December 29 for liquid asphalt for January was $706 per ton, down 7.5% from December and 17% from its peak in August. Forecasts for many construction materials prices point to further declines. For instance, the December 22/29 issue of Engineering News-Record (www.enr.com) forecasts decreases from December 2008 to December 2009 of 1.7% for cement, 3.5% for 2x4 lumber, and 10.3% for structural steel. The article reports that economic consultant IHS Global Insight forecasts the following price changes for 2009 as a whole compared to 2008: asphalt, 5.4% (vs. 22.5% in 2008); cement, -2.3% (vs. 5.0%); rebar, -28% (vs. 37%); construction machinery, 2.3% (vs. 3.0%); fabricated pipe, -3.6% (vs. 7.7%); structural metal, 0.5% (vs. 10.5%); structural sheet, -2.3% (vs. 14%); gypsum products, -2.2% (vs. -9.9%); softwood lumber, -6.8% (vs. -8.2%); plywood, -7.3% (vs. -0.7%); aggregates, 0.5% (vs. 6.5%); sheet metal work, -1.1% (vs. 6.2%); and structural steel, -20% (vs. 31%). In an indication of how universal the slowdown has become, the Bureau of Labor Statistics (BLS) reported today that unemployment rates were higher in November than a year earlier in 364 of the 369 metropolitan areas, lower in 4 areas (Fort Smith and Jonesboro, Arkansas, and Charleston and Huntington, West Virginia) and unchanged in Ames, Iowa. Utah was the fastest-growing state between July 2007 and July 2008, with a population rise of 2.5%, nearly triple the national rate of 0.9%, Census reported on December 22. Revised data for 2006 and 2007 also showed Utah led in 2007 with a gain of 3.2%. Arizona was second, at 2.3%, followed by Texas, North Carolina and Colorado, 2.0% each. The growth rate in Florida, which had been double the national rate until 2007, slowed to 0.7%. The only states to lose population in 2008 were Michigan, -0.5%, and Rhode Island, -0.2%. States with sharply slowing or declining population are likely to have a hard time supporting construction activity.