Category Archives: National information

US Construction Up Again

The Census Bureau reported on February construction activity April 2 and the data showed a reversal of the recent trend in private/public spending. February’s construction totals reached a record $1.273 trillion (seasonally-adjusted), an increase of 3.1% over February 2017.  The AGC’s Ken Simonson noted that the increase was the result of a 5.5% jump in private-nonresidential spending. Spending declined in 12 of the 13 public construction categories, including the largest – highways and streets – which saw a drop of 0.1% from January and 5.1% from last year.
total us construction spending

The $80 million Peters Twp. High School has been released for bidding, due May 10. Bids are out on early packages at the AHN Wexford Hospital being managed by Massaro/Gilbane. CMU took proposals last week from Jendoco, Mascaro, Mosites, PJ Dick, and Rycon on its $45 million Health & Wellness Center – a renovation of Skibo Hall. Pitt selected A. Martini & Co. for its $3.2 million Thaw Hall renovation. The Steelers tabbed Mascaro Construction to build the $2.5 million expansion of Bud Light Pub 33 at Heinz Field. Turner Construction was awarded the 20,000 sq. ft.  build-out of Cozen O’Connor’s space in One Oxford Centre. Franjo was awarded the contract for the new Aldi’s in Greensburg. Nexus Construction has started work on the first of The Healing Center’s medical marijuana dispensaries in Monroeville and Washington. PA Turnpike Commission awarded Trumbull Corp. the $37.8 million contract for Section 55C1-2 of the Southern Beltway.

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Some Optimism From Leasing/Finance Executives

The equipment leasing and finance industry is a $628 billion industry that can be an interesting barometer on activity. The industry’s association released its November 2011 Monthly Confidence Index on Friday and confidence in the equipment finance market is 57.4, up from the October index of 50.7, indicating an increase in optimism about business activity from leasing and finance execs, despite ongoing concerns about the global economic situation.

 When asked to assess their business conditions over the next four months, 18.9% of executives responding said they believe business conditions will improve over the next four months, up from 9.8% in October.  75.7% of respondents believe business conditions will remain the same over the next four months, a decrease from 80.5% in October.  2.0% of executives believe business conditions will worsen, a decrease from 9.8% in October. Some of the other highlights of the survey are:

  •  24.3% of survey respondents believe demand for leases and loans to fund capital expenditures will increase over the next four months, an increase from 17.1% in October.  70.3% believe demand will “remain the same” during the same four-month time period, up from 68.3% the previous month.  5.4% believe demand will decline, down from 14.6% who believed so in October.
  •  27.0% of executives expect more access to capital to fund equipment acquisitions over the next four months, up from 12.2% in October.  73.0% of survey respondents indicate they expect the “same” access to capital to fund business, a decrease from 87.8% the previous month.  No survey respondents expect “less” access to capital, unchanged from October.
  •  When asked, 16.2% of the executives reported they expect to hire more employees over the next four months, up from 14.6% in October.  75.7% expect no change in headcount over the next four months, a decrease from 78% last month, while 8.1% expect fewer employees, an increase from 7.3% in October. 
  •  In November, 32.4% of respondents indicate they believe their company will increase spending on business development activities during the next six months, up from 26.8% in October.  67.6% believe there will be “no change” in business development spending, down from 68.3% last month, and no one believes there will be a decrease in spending, down from 4.9% one who believed so last month. 

 

 

Housing Market May Have Found the Bottom

One of the more perverse (and comforting) realities about doing economic forecasting is that you can get a reputation for wisdom by merely being wrong less than your audience. So emboldened I am going to go out on a limb and predict that the national decline in housing values has hit bottom, or at least the trend has. By that I mean that the indicators of housing sales have reversed themselves within the past 90 days, and that housing values should begin to firm and move upward by the early part of 2009.

 There’s alot of reasons that should sound like a damn fool forecast, not the least of which is the almost certainty of recession symptons (if not the official recession) in 2009. Higher unemployment, stagnant wages and potentially higher prices for necessities don’t make for good buying conditions; however, remember that the seeds of the decline were sown when the economy was flying at its highest in 2006.

Here’s what has finally pushed me to the side of the recovery signal: Pending home sales in August spiked over 9% compared to July. Now there’s no assurance in that, and in fact, the data probably includes alot of bad anecdotal news, like “vulture buying” and price capitulation in overbuilt markets. But the diamond in the rough of the August data was that the increase marked the third straight incidence of an increase following an earlier increase/pullback. That probably sounds confusing. What that shows is that the increase in pending home sales bounced back, tested the bottom and bounced back higher again. That happened in April over February, June over April, and now August over June. If this was a stock chart you’d be calling it a buy signal.

PHSI chart shows pending sales since 2005

PHSI chart shows pending sales since 2005

What’s also good in the August data is that the biggest gains regionally were in places previous in the worst shape: Naples FL, Las Vegas, Central California.

Regardless of the discounting that may be involved, the removal of housing from the inventory is the first step in reducing supply before prices can start to rebound. The realistic prediction is that recessionary forces will probably keep demand from growing for the next 6-18 months, but a decline in supply will firm housing prices ahead of renewed demand, whenever that may occur. And don’t forget that it’s the decline in home values that exposed the weakness of the lending standards and started this whole financial crisis 15 months ago.

Month Pending Home Sales Index
Aug-05 124.4
Aug-06 111.9
Jul-07 92.8
Aug-07 85.8
Sep-07 87.8
Oct-07 89.8
Nov-07 86.9
Dec-07 85.9
Jan-08 86.2
Feb-08 83.8
Mar-08 83
Apr-08 88.9
May-08 84.5
Jun-08 89.4
Jul-08 86.5
Aug-08 93.4

Don’t Panic

September 29th marked at least the third ‘worst day in banking’ this year. With six or seven different ways for the average citizen to find out simultaneously that the House of Representatives turned down the so-called ‘bail-out’ and that Wall Street didn’t like that, it is easy to understand how fear could well up in such a short time. The worst thing any investor can do is to sell into a market panic, unless minimizing your portfolio is the goal.

Remaining calm when all around you is chaos is easier said than done, but there are a couple of things you can do to practice calming your nerves.

First and foremost, focus on the facts. The media is in extreme competition for your attention, and the current theory is that you’ll pay attention to extreme reporting. That means that every event is a ‘crisis,’ complete with its own title, and that the consequences are reported as earth-shattering every day. With all forms of media shouting doomsday headlines at you every minute of the day, it’s easy to forget that the US economy hasn’t even experienced contraction in GDP yet. Unemployment is at 5%, not the 25% of the Great Depression, or even 10% that we experienced in western PA in the early 1980’s. We are most assuredly in an economic slowdown nationally (probably a recession already), but it’s about time for one of those anyway, just like in 1989-1990 or 2001-2003, or any time we have five or six years of growth.

Focus on your investment objectives. Unless you are trading for short term cash growth (in which case-good luck), these tough days for the stock market will pass. If you have an account managed by a professional, your money is probably being used to buy more stock in undervalued companies that will grow that much more rapidly when recovery comes, whether that’s next quarter, next year or next decade.

Focus on the region. Construction and real estate fundamentals in western PA are better than normal. Vacany rates are declining, rents are increasing, and job creation is accelerating. We have massive investment in industrial construction that will produce manufacturing jobs. Legal and accounting firms here continue to grow as their businesses have grown beyond regional borders. Even our banks have steered clear of the poison that has affected other regional institutions. And we all know how strong the healthcare and technology sectors have become in the region.

There is daily evidence that businesses here will be cooling off their plans for construction projects. Doubtless contracting in 2009 will be slower that the past few years, unless some real clarity about the financial markets happens in the next few months. That’s OK. It won’t be fun to endure a slowdown, but the upside is that contraction is the natural response to an extended period of economic growth, and western PA has had the growth. Moreover, the next wave of growth, be it from more tech jobs, healthcare or energy, is already building to keep the downtown relatively short and shallow.

Is the Commodities Chokehold Over?

At noon today, the spot price for oil had recovered about half its losses to sit at $97 and change per barrel. Earlier the price had plunged to just over $93. Gold was up to $780 an ounce, but that level is some $300 below its mid-summer high.  Copper was down to $3.13 per pound, almost a dollar a pound off its summer high (which was almost a record level). After more than a year of rapidly increasing commodity prices, the world’s cooling economic outlook may finally have broken the fever tht has infected basic materials and buildings products for construction.

About the only thing looking up today is diesel, and even that is trending back. Hurricane Ike had plowed into literally the worst spot in North America for the refining business, the channel that runs from the Gulf, through Galveston Bay and into Houston’s refinery row. But as the storm receded another day it looks like damage will be minimal. Some enterprising sorts in the Gulf and Florida have jumped prices at the pump by 50 cents or more (one group of knuckleheads added a buck on Saturday and are now in possession of indictments from the Florida Attorney General’s office), but locally the price of diesel has gone up a dime or less.

The parts of the world that were driving high prices for oil, steel, copper, aluminum, etc. are beginning to slow down. China expects to become a net exporter of steel by 2009. India’s infrastructure needs to catch up to its growth again. The European Union nations, which consume roughly two-thirds what the US does, is experiencing the same kinds of problems (housing slump, reeling financial firms) our economy is, and will be in a recession by the start of 2009. So there is a real decline in demand for the pereviously overheated commodities worldwide. And, as usually happens, the rising prices spurred expansion of supply capacity, which will come on line just as demand craters for a lot of basic materials.

Don’t be surprised to see oil below $75 after Christmas. If the illiquidity in the financial markets continues until that time, there will likely also be a double-digit decline in non-residential construction nationally, which will further pressure prices. None of this is new, of course. After the last oil crisis in the late 1970’s triggered a global recession, prices of commodities gradually and steadily declined until they hit record lows in the mid-1980’s (remember gold at $300/ounce, oil at $10/barrel?).

In Pittsburgh, some of this nonsense will have an effect on our economy, but overall we have become insulated by skill and luck from this economic wretching. Perhaps PNC Bank is the best example of our good economic fortune: as the rest of the banking business was being clobbered today, PNC’s stock prices fluctuated with 5% of its 52-week high.

There are some potential bad consequences to a commodity bubble bursting, but all-in-all a pull back shows that markets will swing back towards equilibrium. At the very least, falling commodities will mean falling building components. For a region which continues to have demand for new construction at high levels, cooling commodities makes pro formas that much more appealing.

Don’t panic.