These are the major developments about commercial construction and the U.S. economy for August 2012.
The Bureau of Economic Analysis (BEA) reported that the U.S. economy slowed in the second quarter with the release of its advance estimate of second quarter real (inflation-adjusted) gross domestic product (GDP) growth of 1.5% at a seasonally adjusted annual rate (SAAR), down from 2.0% growth in the first quarter (revised up from the previously reported 1.9%). The advance estimate will be revised in coming months, as more complete data become available.
Although the economy continues to move forward, this is a barely acceptable rate of growth–essentially treading water and creating minimal incentive for additional hiring or for investment in nonresidential construction. We believe that this is a temporary slowdown, and the next several quarters will see better, though not spectacular, growth.
The BEA also released its annual benchmark revisions of GDP data back to first quarter 2009. The basic story remains the same, although some of the details are slightly different. The decline in 2009 was not quite as bad as originally reported (revised up 0.4%); the rebound not as strong in 2010 (revised down 0.6%); and 2011 was slightly better (revised up 0.1%).
The Bureau of Labor Statistics (BLS) employment report showing July nonfarm payroll employment up 163,000 on a seasonally adjusted (SA) basis provided some support for the view that although economic growth slowed in the second quarter, it is now picking up a bit. While the unemployment rate crept up to 8.3%, that is less worrying as the number comes from a different, smaller, and hence more volatile survey. The only real surprise with the unemployment rate was that it had not risen sooner, given the weak nonfarm payroll employment gains in the second quarter.
Although both residential and nonresidential construction activity have been on an upward trajectory for several months, construction employment keeps declining, though more slowly than a few years ago. It has been nonresidential construction employment that has struggled as it has declined, while employment in residential construction has generally risen over the last 12 months.
Overall, housing continues to improve, but from a low base. Single-family housing starts advanced for the fourth month in a row, up 4.7% in June to 539,000 (SAAR) from May’s 515,000. Single-family building permits rose slightly to 491,000 from May’s 490,000. Both the 20-city and 10-city May S&P/Case-Shiller® Home Price indexes were up–their fourth consecutive monthly increase. Both were still down modestly on a year-over-year basis, 0.7% and 1.0%, respectively.
June new home sales fell 8.4% to 350,000 SAAR, down from May’s 382,000 (revised up from 369,000). Nonetheless, June sales were 15.1% higher than last year. Also, the March through May numbers were revised up a total of 33,000 sales. June’s inventory of new homes for sale at 144,000 remained near the previous month’s record low of 143,000. As a result, any uptick in sales will quickly translate into additional single-family construction activity. Single-family construction spending advanced 3.0% in June after increasing 2.2% in May.
Multifamily housing starts rebounded 12.8% to 221,000 (SAAR) from a 19.3% decrease to 196,000 in May. Given the notorious volatility of the measure, the 3-month moving average provides a better picture of new activity. The average was still down from May, but a slight 0.6% to 220,000. However, it is troubling that June’s 3-month moving average of multifamily building permits of 268,000 was down 4.9% from May–the first decline for the average since February.
Nonetheless, the outlook for multifamily construction looks bright for the near term. The second quarter rental vacancy rate fell to 8.6% (SA) from first quarter’s 8.9% and is the lowest vacancy rate since second quarter 2002. Multifamily construction spending increased 2.8% in June after jumping 5.1% in May. Year-to-date, spending was up 14.8% in June from a year earlier