Economic Environment for Nonresidential Markets Worsens
Jim Haughey
 |
Seed Newsvine |
As was the case last month, the only positive nonresidential construction market drivers are office starts, construction equipment shipments and, marginally, local tax receipts. This is not enough to keep the problems originating in the housing and energy markets from spilling over into nonresidential construction. The office boom is nearing the end, signaled by ebbing rents and marginally rising vacancies in many markets. The strength in construction equipments is entirely in export sales; domestic purchases are declining. The rise in state and local tax receipts is compared to a year ago and includes inflation plus large annual payments on 2007 capital gains and bonuses. 1st quarter tax receipts dropped 5.3% after inflation from a year ago so the funds available for public construction are shrinking.
While nominal nonresidential construction spending is still rising, the volume of activity is still shrinking after adjusting for inflation which has jumped to the 6-8% range. The outlook is for more declines until cost pressures ebb and the domestic demand outlook improves with a rebounding economy next year.
Key Indicators of the U.S. Market Environment — June 2008
Commercial and Industrial Construction (Driven mainly by cyclical factors)
| Year Ago | Previous Month or Qtr. |
Latest | Level | Recent Trend | Impact on Const. | ||
| Commercial | |||||||
| Dow Jones composite REIT, index (Dow Jones) |
234 | 204 | W/E Jul 15th | 181 | Avg. | Falling |  |
| 10-Year T-bill rate, % level (FRB) | 5.1 | 4.15 | W/E Jul 11th | 3.9 | Low | Steady |  |
| Office rent, 54 metro areas, % change y/y (PPR) |
7.3 | 7.9 | Q1 | 6.7 | High | Falling | |
| Office vacancy rate, 54 metro areas, % level (PPR) |
14.9 | 14.8 | Q1 | 15 | High | Steady | |
| Office employment, % change y/y (P&PR) |
1.5 | 1.2 | Q1 | 0.6 | High | Falling | |
| Office construction starts ($s), 3-mon. ave. y/y (RCD) |
38 | 36 | May | 24 | High | Rising |  |
| Hotel room rate, 54 metro areas, % change y/y (PPR) |
7.1 | 6.2 | Q1 | 5.2 | High | Falling | |
| Hotel occupancy rate, 54 metro areas, % level (PPR) |
67.1 | 67.2 | Q1 | 66.9 | Avg. | Steady | |
| Airline revenue passenger miles, % change y/y (RCD) |
2.7 | 1.4 | Jun | -0.5 | Avg. | Falling | |
| Real price of gasoline (June 08 = 100), $s/gal. (U.S. Energy Dept.) |
3.22 | 4.07 | Jun | 4.06 | High | Rising | |
| Hotel construction starts ($s), 3-mon. ave. y/y (RCD) |
69 | -18.0 | Jun | -45.0 | High | Falling | |
| Retail rent, 54 metro areas, % change y/y (PPR) |
4.3 | 1.7 | Q1 | 0.6 | Avg. | Falling | |
| Retail vacancy rate, 54 metro areas, % level (PPR) |
9.9 | 10.8 | Q1 | 11.4 | Avg. | Rising | |
| Retail sales, % change y/y (U.S. Census Bureau) |
4.0 | 2.1 | June | 3.2 | Avg. | Steady | |
| Consumer confidence index (The Conference Board) |
105.3 | 58.1 | June | 50.4 | Low | Falling | |
| Consumer real income growth, % change y/y (U.S. Commerce Dept.) |
1.7 | 2.0 | May | 8.6 | High | Rising | |
| Retail construction starts ($s), 3-mon. ave. y/y (RCD) |
29 | -14.0 | June | -26.0 | High | Falling | |
| Industrial | |||||||
| Warehouse rent, 54 metro areas, % change y/y (PPR) |
4 | 2.9 | Q1 | 2.1 | Low | Falling | |
| Warehouse vacancy rate, 54 metro areas, % level (PPR) |
8.6 | 8.8 | Q1 | 9.0 | Avg. | Falling | |
| Business inventory, % change y/y (U.S. Census Bureau) |
4.2 | 5.3 | May | 5.2 | Avg. | Steady | |
| Business sales, % change y/y (U.S. Census Bureau) |
3.8 | 6.9 | May | 6.6 | Avg. | Steady | |
| Warehouse construction starts ($s), 3-mon. ave. y/y (RCD) |
-12.0 | -42.0 | June | -17.0 | Low | Falling | |
| Capacity utilization rate, % level (FRB) | 79.6 | 77.6 | June | 77.6 | Avg. | Falling | |
| Manufacturing production index (FRB) | 114.4 | 113.7 | June | 113.9 | Low | Steady | |
| Goods trade (EX + IM), $ billions (U.S. Commerce Dept.) |
259 | 293 | June | 294 | High | Steady | |
Abbreviations: y/y = year over year; WE = week ending; FRB = Federal Reserve Board;
PPR = Property & Portfolio Research; RCD = Reed Construction Data.
Table: Reed Construction Data and Reed Construction Data - CanaData.
Key Indicators of the U.S. Market Environment — June 2008
Institutional and Engineering Construction
(Driven by demographics and government finances, as well as cyclical factors)
| Year Ago | Previous Month or Qtr. |
Latest | Level | Recent Trend | Impact on Const. | ||
| Institutional | |||||||
| State & local govt. capital spending, $ billions (U.S. Commerce Dept.) |
335 | 363 | Q1 | 358 | High | Falling | |
| State & local government tax receipts, $ billions (U.S. Commerce Dept.) |
1271 | 1305 | Q1 | 1327 | High | Rising | |
| State budget reserves, % of Exp. (National Governors assn.) |
10.5 | n/a | FY 08 | 8.0 | High | Falling | |
| Stock market index (Dow Jones Industrial) |
13,851 | 11,843 | W/E Jul 14th | 10,963 | High | Falling | |
| K-12 enrollment, millions of people (U.S. Education Dept.) |
55.762 | n/a | 2007-08 | 55.966 | Avg. | Steady | |
| Higher-education enrollment, millions of people (U.S. Education Dept.) |
17.598 | na/ | 2007-08 | 18.264 | High | Rising | |
| Hospital receipts, $ billions
(U.S. Health & Human Services Dept.) |
648.2 | 2007 | 696.7 | High | Rising | |
|
| Prison population, % change y/y (Pew Charitable Trust) |
4.5 | N/A | 2006-07 | 2.5 | High | Falling | |
| Heavy/Engineering | |||||||
| Federal highway trust fund, $ billions (U.S. Treasury Dept.) |
15,002 | 10,659 | Jun | 9,979 | Low | Falling | |
| Electric power capacity utilization rate, % level (FRB) |
84.9 | 84.9 | Jun | 86.5 | High | Steady | |
| Airline revenue passenger miles, billions (RCD) |
2.7 | 1.4 | Jun | -0.5 | Avg. | Falling | |
| State & local govt. capital spending, $ billions (U.S. Commerce Dept.) |
335 | 363 | Q1 | 358 | High | Falling | |
| State and local government tax receipts, $ billions (U.S. Commerce Dept.) |
1271 | 1305 | Q1 | 1327 | High | Rising | |
| Heavy contractor employment, 000s (U.S. Labor Dept.) |
1008.1 | 964.90 | Jun | 960.0 | High | Falling | |
| Construction equipment shipments, % change y/y (U.S. Census Bureau) |
-31.1 | 18.9 | May | 7.7 | Avg. | Rising | |
Abbreviations: y/y = year over year; WE = week ending;
FRB = Federal Reserve Board; RCD = Reed Construction Data.
Table: Reed Construction Data and Reed Construction Data - CanaData.
