Data Digest: Construction spending sags in January; state DOT budgets shrink; more prices rise

Construction spending in January totaled $792 billion at a seasonally adjusted annual rate, the Census Bureau reported today, down 0.7% from the upwardly revised December total of $798 billion (originally estimated as $788 billion), down 5.9% from the January 2010 level and the second-lowest mark since July 2000. Private nonresidential construction plummeted 6.9% for the month and 13% year-over-year. All 11 subcategories in the Census press release declined except private transportation (truck and rail facilities), which rose 5.9% and 15%, respectively. Public construction rose 0.1% and 2.9%. Public nonresidential construction jumped 5.3% for the month but fell 7.7% year-over-year. The Census release shows that new single-family construction was up 0.8% for the month and down 4.8% from a year earlier, while multifamily spending fell 2.9% and 20%. The largest part of the residential total—not shown separately in the release—was improvements, which soared 10% for the month and fell 8.7% year-over-year. However, this subsegment tends to be heavily revised in later months. Price increase notices continue to bombard contractors. One company forwarded to AGC 14 faxes it had received from suppliers announcing increases. In addition, “Trucking firms are expected to capture their biggest rate increases in years in 2011, adding another threat to growing inflation worries,” USA Today reported on Monday. “Analyst Benjamin Hartford of research firm R.W. Baird estimates rates will rise 5%, the most since 2005. After falling from 2007 to 2009, truck rates edged up 2% last year, he says, and could surge in coming weeks in advance of Easter retail sales. Driving the rebound: an intensifying recovery combined with soaring diesel costs, stricter safety regulations and tighter capacity.” Truck tonnage rose 8% in January from a year before to a three-year high, the American Trucking Associations reported on Wednesday. Construction is very trucking-intensive, using many truckloads per project to deliver materials and machinery and haul away dirt and debris. Respondents to a monthly survey of manufacturing purchasing executives listed the following items important to construction as up in price in February, the Institute for Supply Management reported today: aluminum, brass, copper, diesel fuel, steel, stainless steel and plastics. A survey of 13 state department of transportation (DOT) budgets for fiscal 2011-12 showed an average decrease of 1.9% from 2010-11 levels, compared with a 1.0% increase from 2009-10, Thompson Research Group reported on Monday (www.thompsonresearchgroup.com). “Contacts note the chance of a new [federal Highway Trust Fund] bill in 2011 are slim and are expecting to operate under continuing resolutions throughout the Presidential election cycle in 2012. Should a new highway bill funded at actual HTF tax receipt levels pass, a real possibility we believe, one DOT contact noted, ‘that would be a killer for us.’ State DOT revenues continue to improve. DOT officials are optimistic on the gradual return of state tax collections as the economy rebounds.” The HTF will expire on Friday unless Congress renews it. “A stabilization trend is taking place in commercial real estate sectors, but in most markets rent will remain soft except for multifamily rentals,” the National Association of Realtors stated on Friday. “Lawrence Yun, NAR chief economist, said a pullback in construction is helping stabilize the market. ‘Very limited construction of new commercial real estate over the past few years has essentially fixed the supply of available space,’ Yun said.…Vacancy rates in the office sector are forecast to decline from 16.5% in the first quarter of this year to 16.0% in the first quarter of 2012. The markets with the lowest office vacancy rates currently are New York City and Honolulu, with vacancies in the 8 to 9% range. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, should be 14.5 million square feet in 2011. Industrial vacancy rates are projected to decline from 14.2% in the current quarter to 12.9% in the first quarter of 2012. At present, the areas with the lowest industrial vacancy rates are Los Angeles and Salt Lake City, with vacancies of 7.5%.…Net absorption of industrial space in 58 markets tracked should be 127.5 million square feet in 2011. Retail vacancy rates are expected to slip from 13.0% in the first quarter of this year to 12.9% in the first quarter of 2012. Markets with the lowest retail vacancy rates currently include San Francisco; Miami; Honolulu; and Long Island, all with vacancies in the 7 to 8% range….Net absorption of retail space in 53 tracked markets is projected to be 4.8 million in 2011. The apartment rental market—multifamily housing—is tightening as the economy improves. Multifamily vacancy rates are forecast to decline from 5.8% in the current quarter to 4.9% in the first quarter of 2012. Areas with the lowest multifamily vacancy rates presently are San Jose; Pittsburgh; and Newark, with vacancies in a range around 3%. Multifamily net absorption should be 207,000 units in 59 tracked metro areas in 2011.” “The annual rate of [construction union] wage and fringe increases in 2010 was 2.7%, down from 3.9% in the prior year [and] the smallest annual increase since 1995,” the Construction Labor Research Council reported last month (www.clrcdata.org). “Based upon increases already negotiated in contracts for the next two years, wages and fringes will rise by close to 3% [for both 2011 and 2012, but] increases are spread through a wide range from the averages.” The report noted, “Variations among regions and crafts have been minimal in recent years…with the exception of elevator constructors (higher).”