Economy
Non-Residential Construction Rebound Imminent
Written by Sandy Williams
February 11, 2014
A recovery in non-residential construction is happening said research analyst Timna Tanners, in a report by Bank of America Merrill Lynch, but the upturn for the non-residential cycle has taken longer than expected and is “less pronounced” than usual.
The last strong cycle for non-residential construction was in 2005-2007, supporting a booming housing market. The current cycle, says Tanners, is confronted by less public spending on infrastructure and tight credit conditions.
Leading indicators like the Federal Reserve Loan Officer Survey and the Architectural Billings Index have been misleading according to Tanners, with the ABI showing a false positive since the second half of 2012. Anecdotal evidence has given the strongest credence to an upswing in non-res construction. Backlogs at steel mills and stronger order books at fabricators and cement businesses indicate a slow but steady recovery in 2014 with potential acceleration in 2015.
Normally non-residential recovery lags behind residential by one to two years. Residential construction has been strong since 2012 but has yet to give the traditional boost to non-residential. Tanners found historical evidence of lags of 30+ months for the non-res cycle which, if applicable in the current cycle, would push serious recovery into the second half of 2014.
Other encouraging indicators are an increase in capacity utilization rates to 79.2 percent in December and a rise of 3.6 percent year-over-year for industrial production. Highway construction also picked up with awards data showing a 6 percent increase from the 2005-2012 average and 7 percent increase year-over-year. Federal Reserve reports also indicated commercial construction beginning to increase, along with commercial sales and leasing activity. The energy sector continues to show increased activity.
Sandy Williams
Read more from Sandy WilliamsLatest in Economy
SMU Community Chat: Tariff-induced panic purchases, inflation, and calculating costs
Chief executive of the Institute for Supply Management (ISM), Tom Derry highlighted how reactive buying behavior has shifted the market into a quiet demand period. Derry presented ISM data during the weekly SMU community chat.
Architecture billings still sluggish despite project inquiry uptick
The Architecture Billings Index (ABI), a leading indicator for non-residential construction activity, declined for an eighth straight month in June.
Beige Book: Tariff pressures mount, flat outlook
All districts reported “experiencing modest to pronounced input cost pressures related to tariffs, especially for raw materials used in manufacturing and construction.”
Steel exports recovered in May but still historically low
US steel exports rose 10% from April to May but remained low compared to recent years. This came just one month after exports fell to the lowest level recorded in nearly five years.
AISI: Raw steel production ticks up near recent high
The volume of raw steel produced by US mills inched higher last week, according to the American Iron and Steel Institute (AISI). After steadily increasing in April and May, domestic mill output stabilized in early June and has remained historically strong since.