As the nation tentatively continues forward with recovery—whether it be a full turnaround or the first part of an unwanted “W” trend—the construction sector continues to try and rid itself of a laundry list of laments. Building permits ticked upwards in August at a seasonally adjusted rate of 579,000, a 2.7% increase over July, but was still more than 32% below the same period in 2008. Housing starts also increased slightly in August over July by 1.5%, but completions were again down 5.5% and both figures were more than 25% below the numbers seen at this time last year.
From the federal government’s perspective, the industry is heading in the right direction as housing permits are up 16% from a low in April, which is good news after a near fatal plummet of 78% between September 2005 and April 2009.
“Housing permits and starts have risen substantially above their earlier lows this year,” said U.S. Commerce Secretary Gary Locke. “The upturn in housing activity and the recent gains in retail sales and industrial production demonstrate considerable progress toward recovery. More stimulus spending in the coming months should help spread growth to other sectors of the economy.”
Unfortunately, many local governments are anticipating further declines in property values and commercial construction, further pilfering the already barren pantries of their budgets.
With construction sector unemployment more than twice the national average, it also worth noting that construction costs increased in August as the price for materials used in all type of construction inched upward a combined 1.1%. Fortunately, costs are still light years away from those seen just a year ago. Ken Simonson, chief economist for the Associated General Contractors of America (AGC), stated that the increases were in large part due to a significant 17% leap in the price of diesel during the month of August, as well as a rebound in steel prices of 6.8% and in an 11% increase in the price of copper. After hitting peaks in 2008, prices for materials like diesel, asphalt, steel and copper have tumbled for much of 2009 as commodity markets and demand tanked. For example, according to the AGC’s product price index (PPI), the price for diesel is still 41% below August 2008 while the price for most metal materials are down between 10% and 35%. And despite the increases in material prices seen during the month of August, the price for major material components like diesel, copper and steel have already receded since the end of month.
Though construction is searching for solid footing in its effort toward rebound, faced with the challenge that commercially available credit has been vaporized in the sector as real estate loan delinquencies are at record highs, the overall trend for construction costs remains negative. Compared to the high costs of August 2008, the cost of construction is down nearly 7.5%, which Simonson believes makes for an attractive bargain.
“Prices haven’t been this competitive for construction services in a long time, but once the domestic and global economy heats up, they are likely to rise again,” advised Simonson. “Public officials and private developers should act now to cash in on what is clearly a limited-time sale for construction.”
Matthew Carr, NACM staff writer