Beige Book, McGraw-Hill report fall in construction; PPI slips but some materials jump

"Reports from the 12 Federal Reserve Districts indicated either stabilization or modest improvements in many sectors since the last report, albeit often from depressed levels," the Fed reported on Wednesday in the Beige Book (so named for the color of its cover), a summary of informal soundings of business conditions conducted in each district from late August to October 12. "Leading the more positive sector reports among districts were residential real estate and manufacturing, both of which continued a pattern of improvement that emerged over the summer....Districts generally reported little or no increase to either price or wage pressures, but references to downward pressures were occasionally noted. While upward price pressures were generally subdued in most districts, materials prices increased in Cleveland (mainly for steel) and Kansas City. [Districts are named for their headquarters cities.] Residential construction activity remained weak in most districts....Commercial real estate continued to weaken across the 12 districts, although even this sector had scattered bright spots. Each district indicated that demand for private commercial real estate was weak, with New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco all characterizing activity as declining further since the last report. An inability to obtain credit was often cited as a problem for businesses that wanted to purchase or build space. High vacancy rates were noted as a key concern especially for landlords who were not offering concessions. And, while industrial real estate in the Richmond District was generally weak, renewed interest by retailers to revisit postponed expansion plans was also noted. Finally, public nonresidential construction activity funded by federal stimulus projects was a source of strength in the Cleveland, Chicago, Minneapolis, and Dallas districts, but gains were often offset by state and local government cutbacks." New construction starts fell 7% in September at a seasonally adjusted annual rate, McGraw-Hill Construction reported on Thursday, based on data it compiled. "Nonresidential building continued to weaken after its brief upturn in July, and residential building also settled back after recent gains. Meanwhile, nonbuilding construction (comprised of public works and electric utilities) retreated after its August surge, maintaining the up-and-down pattern that's been present for much of 2009." Total spending in the first nine months of 2009 was down 32% from 2008. The producer price index (PPI) for finished goods fell 0.5% in September, not seasonally adjusted (0.6%, seasonally adjusted), and 4.8% over the latest 12 months, the Bureau of Labor Statistics (BLS) reported on Tuesday. The PPI for inputs to construction fell 0.4% for the month and 8.2% over 12 months. The decline was influenced by a plunge in the PPI for diesel fuel, -4.7% and -44%. But retail diesel prices have risen since the PPI data were collected in mid-September, reaching an 11-month high of $2.70 per gallon on October 19, the Energy Information Administration reported that day. Some materials prices rose sharply last month, suggesting the steep price declines of the past year may be nearing an end. The PPI for copper and brass mill shapes rose 10% for the month but was down 2.2% over 12 months; steel mill products, 3.0% and -32.8%; aluminum mill shapes, 2.1% and -17.2%; plastic construction products, 1.2% and -2.5%; and insulation materials, 0.5% and -0.2%. But other prices fell again or remained flat: gypsum products, -1.2% and -4.4%; asphalt paving mixtures and blocks, -0.6% and -18%; lumber and plywood, -0.2% and 0.9%; and concrete products, 0 and 0. Reflecting the fierce bidding that has driven down contractors' margins to the vanishing point, the PPIs for finished buildings and for nonresidential subcontractors all fell or were flat in September: new office construction, -2.0% and 0.8%; warehouses, -1.3% and 0.1%; schools, -0.8% and 0.8%; industrial buildings, -0.2% and -0.2%; roofing contractors, -0.4% and 4.0%; electrical, -0.3% and -1.7%; plumbing, -0.1% and 2.7%; and concrete, 0 and 1.9%. Seasonally adjusted nonfarm payroll employment declined in 43 states and the District of Columbia and rose in seven states from August to September, BLS reported on Wednesday. Compared to September 2008, employment fell everywhere, led by Arizona and Michigan, -7.5% each; Nevada and Oregon, -6.1% each; and Georgia, -6.0%. Construction employment dropped from August to September in 36 states, rose in 12 plus D.C., and was unchanged in Vermont and Iowa. Over the year, construction employment rose 2.1% in Louisiana and fell everywhere else, led by Nevada, -28%; Arizona, -25%; Michigan and Tennessee, -22% each; Connecticut and Kentucky, -20% each. (BLS combines construction with mining and logging in D.C., Tennessee and six other states to avoid disclosing data about industries with small totals.) Mass layoffs involving 50 or more workers at one employer totaled 1,371 events involving 123,000 initial uninsurance claims in September, not seasonally adjusted, compared to 1,292 events and 130,000 claimants in September 2008, BLS reported on Thursday. "Of the 10 detailed industries with the largest number of mass layoff initial claims, three reached a series high for September: nonresidential electrical contractors, farm machinery and equipment manufacturing, and construction machinery manufacturing." "Industry demand expanded for the first time in five quarters and all [78] panelists are expecting growth" in real (inflation-adjusted) gross domestic product in 2010, the National Association for Business Economics (www.nabe.com) reported today in summarizing a survey of corporate economists. However, of 51 firms reporting plans for spending on structures, only 18% expect an increase in the next 12 months, vs. 24% that expect a fall, the fifth straight negative quarter.