September housing starts and permits soar, but the outlook dims for factory, warehouse and utility construction, according to DATA DIGest newsletter.

The DATA DIGest, Oct. 14-18

The consumer price index for all urban consumers (CPI-U) rose by a moderate 0.2%, seasonally adjusted, in September and a mere 1.5% over the September 2001 level, the Bureau of Labor Statistics (BLS) reported. The "core rate," omitting food and energy costs, inched up by 0.1% for the month and 2.2% for the past 12 months, one of the slowest rates since 1965.

The combination of a minimal price increase and a strong 0.6% rise in average weekly hours in September meant that real (inflation-adjusted) average weekly earnings increased by 0.7% for the month and 3.7% for the 12-month period, BLS reported. That helps maintain consumer buying power. Average hourly earnings for construction workers were $19.06 in September, up by 3.0% (without adjusting for inflation) from September 2001, matching the private-industry average. Because average weekly hours for construction workers fell over the year, average weekly earnings rose by less, 2.2%.

More of the spending went to buy imported goods. Imports rose by 2% in August to a 19-month high, the Commerce Department reported, propelled in part by buying in anticipation of the West Coast port shutdown that occurred in early October, and in part by higher oil prices. More ominously for U.S. producers, exports dropped.

Housing continues to lead the economy. The government reported that housing starts jumped 13% from August to September to a seasonally adjusted annual rate of 1,843,000. That is 16% above the September 2001 figure. Equally encouraging, building permits climbed 3.7% for the month and 10% compared to the year-ago month. Permits for single-unit homes rose by 3% for the month (12% year-to-year) for 2- to 4-unit housing by 8% (41% year-to-year), and for 5+ units by 4% (-2% year-to-year).

Industrial production, seasonally adjusted, slipped 0.1% in September and 0.3% in August, following gains of 0.5% in July (revised from 0.4%) and 0.6% in June, the Federal Reserve reported. The full series includes manufacturing, utilities (which are strongly affected by swings in demand for air conditioning) and mining. The manufacturing index displays an even more worrisome downtrend: -0.3% in September, -0.2% in August (revised from -0.1%), 0.4% in July and 0.6% in June. Further, capacity utilization in manufacturing stood at 74.2% in September, down from 74.4% in August and barely above the 73.7% level of a year before. Both consistent output growth and substantial capacity utilization (the 1967-2001 average for manufacturing is 80.9%) are needed to stimulate factory construction. The Fed noted: "The production of business equipment dropped 1.7% in September. A key contributor to this decline was a pullback in the production of industrial and other equipment, especially construction and farm machinery." The index for construction supplies rose 0.3% in September, vs. 0.9% in August, -1.5% in July and 0.7% in June.

Although utilities used a much higher 88.2% of capacity in September (slightly above the 1967-2001 average of 87.6%), a report from Standard and Poor's showed more than 100 recent downgrades of utility credit ratings, making the outlook for power plant construction very dim.

In another sign that the economy is still weak (aside from housing), the Census Bureau reported that sales of manufacturers, wholesalers and retailers climbed just 0.2% in August, seasonally adjusted, following a 1.3% jump in July. Inventories slipped 0.1%, following a 0.4% rise in July. Compared to August 2001, inventories are down by 3.6% and the inventory/sales ratio is at a record low of 1.34. These figures imply demand will remain low for warehouse or storage construction.

Highway spending got at least a temporary boost. Congress sent the President another stopgap "continuing resolution" that keeps highway spending at the same $31.8 billion annual level as in the fiscal year that ended September 30. The bill contained language that AGC sought reversing an Office of Management and Budget that spending would be cut to a $27.7 billion rate. The stopgap bill runs until November 22.

Congressional negotiators on a bill to provide a federal backstop for terrorism insurance have apparently reached agreement, although language has not been released yet. AGC had sought legislation to help overcome mounting cancellations of construction projects involving high-profile sites.

Kenneth D. Simonson is chief economist for Associated General Contractors of America, and can be reached at 333 John Carlyle Street, Suite 200, Alexandria, VA 22314, 703-837-5313; fax -5406; e-mail; website