Data Digest: February construction spending tumbles; March employment slips despite overall rise

Construction spending tumbled 1.4% in February to $761 billion at a seasonally adjusted annual rate, the lowest total since 1999 and 6.8% percent below the February 2010 level, the Census Bureau reported on Friday. The slump was accentuated by downward revisions for January (from $792 billion to $771 billion) and December (from $798 billion to $785 billion). Private residential construction shrank 3.7% for the month and 8.1% year-over-year, with declines in all three subcategories (listed by descending order of current size): improvements to existing structures, -5.8% and -7.2%, respectively; new single-family, -3.7% and -8.1%; and new multifamily, -1.7% and -19%. Private nonresidential construction was up 0.9% for the month but down 13% year-over-year, with mixed results for the latest month but mostly negative comparisons with February 2010 (listed in descending order): power, 2.8% and 0.0%; commercial (retail, warehouse and farm), -0.8% and -13%; manufacturing, 5.6% and -31%; health care, -1.1% and -7.4%; office, -1.9% and -23%; and communication, 1.5% and -5.2%. Public construction slipped 1.5% for the month and edged up 0.5% from a year earlier, with highway and street construction (the largest subcategory) gaining 0.4% and 11% while educational fell 3.7% and 12%; transportation, -0.3% and -6.5%; and sewage and waste disposal, -1.4% and 1.2%. The unemployment rate edged down 0.1 percentage point in March to 8.8%, seasonally adjusted (9.2%, not seasonally adjusted), a two-year low, the Bureau of Labor Statistics (BLS) reported on Friday. Nonfarm payroll employment increased by 216,000, seasonally adjusted, and by 1,300,000 (1.0%) compared with March 2010. The unemployment rate in construction was 20.0%, not seasonally adjusted (BLS does not report seasonally adjusted rates by industry), the highest of any industry but down from 24.9% in March 2010. Construction employment slipped by 1,000 for the month, seasonally adjusted, and 36,000 (0.6%) over 12 months. The March total, 5,514,000, 2.2 million (29%) lower than the peak in April 2006. Among the five BLS subsectors, heavy and civil engineering construction employment rose 2,400 for the month and 25,100 (3.1%) over 12 months; nonresidential specialty trade contractors, 1,300 and -100 (0.0%); nonresidential building, 2,600 and -1,800 (-0.3%); residential specialty trades, -8,000 and -40,900 (-2.7%); and residential building, 600 and -18,600 (-3.2%). Architectural and engineering services employment, a harbinger of future demand for construction, rose 5,200 and 10,200 (0.8%). Average hourly earnings in construction inched up 1 cent to $25.41 in March, seasonally adjusted, a gain of 24 cents (1.0%) from the March 2010 average. “State and local tax revenue has nearly snapped back to the peak hit several years ago—a gain attributed to a reviving economy and tax increases implemented during the recession,” the Wall Street Journal reported on Wednesday, citing Census data released on Tuesday. “The latest tallies show a diverging trend in the fiscal health of state and local governments. While state tax revenue increased every quarter of 2010, including a 6.7% jump in the fourth period compared with a year earlier, local tax revenue fell in the first and fourth quarters—in part because of slumping real-estate tax receipts. While states are primarily funded by sales and income taxes—which tend to grow along with an expanding economy—the nation’s 89,000 cities, school districts and other local governments depend heavily on property taxes. It typically takes a few years for falling housing prices to show up in property-tax receipts, and the latest Census figures suggest that is now happening. Local ‘governments are still very much in the midst of the downturn and are likely to have a couple of tough years ahead,’ says Chris Hoene, director of research for the National League of Cities, adding that local governments will struggle until there is a rebound in housing markets….Meanwhile, in the 2012 fiscal year that starts in July [in most states], states will no longer have the roughly $150 billion stimulus funds that over the past two years have been used to fill gaps in states’ budgets. That means governors and legislators are just now considering cuts that, but for the stimulus, would have been made years ago….Concerns about governments’ ability to get their fiscal houses in order have roiled the municipal-bond market, raising borrowing costs for many cities and in the process impeding their ability to spend on things like new roads and sewers.” Returns on real estate investment trusts (REITs) can be a signal of where funds will flow for construction of income-producing properties. “In early 2009, investors began pouring cash into REIT stocks, in part because they carried high dividends but also because investors reasoned that the values of commercial properties would gain as rents and occupancy levels rose in the aftermath of the brutal economic downturn,” the Journal wrote on Wednesday. “But now, some REIT investors are taking profits and moving to the sidelines on concerns that global events could clip future REIT profits….Hessam Nadji, managing director of research at Marcus & Millichap, [said,] ‘Because of the bad news globally in the last 60 days…many companies are thinking twice about making large [space] commitments.’…Hotel REITs, which were the top performers in 2010 with gains of nearly 20%, were the biggest laggards in the first quarter, posting returns of negative 1.24%....However, some REIT sectors did better than others. Investors in industrial and self-storage stocks did well…as warehouse owners benefited from a pickup in global trade and rising inventories from national retailers.”