Construction down, overall manufacturing mixed

Construction down, overall manufacturing mixed

Construction spending in July fell 0.6% at a seasonally adjusted annual rate, with year-to-date (YTD) spending in the first seven months of 2008 down more than five percent from the same period in 2007, the Census Bureau reported this week

Construction spending in July fell 0.6% at a seasonally adjusted annual rate, with year-to-date (YTD) spending in the first seven months of 2008 down more than five percent from the same period in 2007, the Census Bureau reported this week.

According to the Census Bureau, the decline was mostly due to the drop in private residential spending, which fell 2.3% in July and is down 28% YTD. Private nonresidential spending fell 0.7% for the month, although it is up 19% YTD, while public construction spending is up 1.4% for the month and 7.5% YTD.

“Although the headline figure showed a drop of 0.6% in total construction put in place in July, the bad news was limited to residential spending, which tumbled 2.1 percent,” said Ken Simonson, chief economist for The Associated General Contractors of America (AGC). “The report included a huge upward revision in June and May nonresidential spending, and yet the July figure was still 0.2% higher than the new June total.

“Year-to-date figures comparing the first seven months of 2008 and 2007 show how broad-based the nonresidential strength is,” Simonson said. “Total nonresidential spending through July was 14% ahead of the year-ago total, and 15 of the 16 Census categories—all but religious structures—rose.

“Power construction—power plants, transmission lines and wind farms—jumped by a third through July and may accelerate further in 2009 as more projects move from design and permitting into construction,” Simonson added. “However, wind turbine projects will halt soon if Congress doesn’t renew the production tax credit.”

The largest YTD gains in nonresidential segments were in manufacturing, lodging, and power, AGC said. According to the Institute for Supply Management (ISM), much of the increase may be a result of construction-related commodities decreasing in price.

“The most robust category so far this year has been manufacturing, which jumped 46%, thanks to some massive refinery projects but also steel, cement and other plants,” Simonson said. “That work should continue at a high level through 2009.”

However, ISM’s Report on Business was less positive about the manufacturing sector as a whole, registering a PMI (purchasing managers index) of 49.9%, signifying that the manufacturing economy is generally contracting, albeit it very slowly.

"The PMI indicates a slight decline in manufacturing during August,” said Norbert J. Ore, chair of ISM’s Manufacturing Business Survey Committee. “This continues the 2008 trend toward negligible growth or contraction each month, but ultimately results in very little overall change in the sector. This month's report is showing the first signs of lower prices as the Prices Index fell significantly, though still at an inflationary level. Export orders picked up additional momentum, and that is important to manufacturers as domestic demand remains soft for most industries."

According to ISM, the industries reporting growth in August were Paper Products, Computer & Electronic Products, Miscellaneous Manufacturing, Apparel, Leather & Allied Products and Chemical Products. The industries reporting contraction were Wood Products, Plastics & Rubber Products, Fabricated Metal Products, Transportation Equipment, Furniture & Related Products, Machinery and Primary Metals.

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