Weekly Market Update - December 4, 2015

Construction put-in-place (US Census Bureau): Total CPIP rose 12.8% y/y and accelerated to +16.5% 3 months y/y in October. Private construction advanced 13.7% y/y and a stronger 18.4% 3 months y/y, while State & Local spending increased by 10.3% and 11.9% for the 3 and 12 month y/y comparisons. Single family residential continued to rise posting a 17.0% increase over 12 months and a slightly better 17.9% performance on a 3 month y/y basis, (Table 1). Fig. 1 charts total CPIP from 2005 to present. Current inflation adjusted (constant 2010$), expenditures now match those last seen in 2008.

Table 2 shows non-residential CPIP, which totaled $420.7 billion for the 12 months ending October, up 23.0% 12 months y/y and a marginally lower 22.6%, 3 months y/y. Private expenditures totaled $308.1 billion, up 28.5%, 12 months y/y. State & Local spending recorded $112.6 billion over the year for 10.0% y/y growth. Ever project category documented growth except for public safety which declined 3.6% y/y and 3.7%, 3 months y/y. The project sector with the largest growth in percentage terms was manufacturing, up 55.8% to $73.6 billion y/y and +52.8%, 3 months y/y. Fig. 2 presents total non-residential building expenditure from 2005 to present. Current inflation adjusted (constant 2010$), expenditures now match those last seen in 2009.

Fig. 3 shows a historic view of total infrastructure CPIP back to 1993 in constant 2010 dollars. After a two plateau from 2012 to 2013, expenditures began to accelerate in 2014 and have continued to accelerate thus far in 2015.

Table 1

Table 2

Non-Residential Construction Starts (Dodge Sq.-Ft.): NRC starts measured in square feet declined 16.2%, 3 months y/y in October. NCR starts have now declined for three months in a row on both a one month y/y and 3 month y/y comparison. It was also the first time, in 52 months, that NRC starts declined on a rolling 12 month y/y basis. This is very concerning since historically when an inflection point of change occurs, the direction of the trend continues for a considerable time period. Hopefully this time it is just a temporary stall and growth will commence once again. Octobers starts excluding apartments >4 stories stood at 927 million sq.-ft. virtually the same as the low point of 925 million sq.-ft. realized in February 1993, Fig. 4. The situation is considerably better when apartments >4 stories are included, Fig. 5. Unfortunately for long products steel producers and consumers, a significant ratio of apartments >4 stories are constructed with wood and/or light flat rolled steel stud framing. Table 3 presents NRC specifics by project grouping comparing both 3 months y/y and 12 months y/y, along with momentum which is defined as 3 month y/y minus 12 month y/y. The table is sorted highest to lowest on the 3 month y/y column. Only two categories show growth 3 months y/y with positive momentum. These include transportation buildings and religious facilities, all other sectors recorded declines, albeit warehousing construction posted positive momentum despite having negative growth for both 3 and 12 month y/y comparisons. Several of the declining sectors posted large double digit declines 3 months y/y including: Civic (-43.7%), Manufacturing Plants (-35.1%), Offices & Banks (-34.4%), Recreational (-27.8%). Retail (-24.2%), Educational (-20.6%), Hotel/Motel (-18.9%) and Parking Structures off 16.6%.

Fig 4

Infrastructure Construction Starts (Dodge $): Infrastructure starts are presented in dollars since these project types are not “under roof” and therefore cannot be measured in sq.-ft. terms. Total Infrastructure starts had a good year, up 57.6% y/y ending October. Power and other plants led the growth, up 231% to $506.1 billion. The next largest category, Transportation recorded $109.6 billion for the year, a 5.8% y/y increase followed by Sewage and Water Treatment/Supply/Dams which saw a $114.5 billion in investment spending over the year for a 26.3% y/y increase. The 3 month y/y metrics show a substantial decrease in y/y growth as evidenced by negative 57.4% momentum. This value is heavily influenced by the Power and Other Plant category that realized a sizable reduction in starts. The good news is that in total overall infrastructure growth continued to grow, albeit at just 0.2% 3 months y/y, Table 4.

Table 4

Housing Permits and Starts: Total housing starts in October were at an annual rate of 1,060,000 which was the lowest number since March. In October the three month moving average, (3MMA) was 1,122,000 which was down from 1,153,000 in September and from 1,160,000 in August. Total starts are still on track to reach 1.6 million units annualized by the end of 2018. Fig. 6 also shows the timing of the last three recessions as they relate to housing starts. Single family starts in October were at an annual rate of 722,000 with a 3MMA of 732,000. The 3MMA was up by 9.3% year over year but is still 60.4% below the peak of late 2005. Multifamily, (apartments / condominiums) starts in October were at an annual rate of 338,000 with a 3MMA of 390,000. The Census Department results are seasonally adjusted and the monthly numbers are annualized.

Permit data is considered to be a leading indicator for starts. If permits exceed starts then there should be an acceleration in construction and vice versa. Total permits in October were at an annual rate of 1,150,000 with a 3MMA of 1,139,000. Permits are back on track with starts after a major divergence in June, (Fig. 7). However it looks as though permits don’t really lead starts, suggesting that the two are very close together from a timing point of view. On a 3MMA basis total permits were up by 6.3% y/y. Single family were up by 8.0% and multifamily by 3.7%. Multifamily permit growth peaked at 41.4% y/y in July. Most economists have been expecting a decline driven by the end of a tax subsidy in New York State and this can be seen in the data, where permits in the North East fell from 288,000 in May to 125,000 in October.

Table 5 shows total permits and starts nationally and regionally. At the national level the differential between permits and starts for single and multi-family units is suggesting that the shift in consumer’s preference towards apartments is ongoing. In October on a 3MMA basis, permits of multi-family exceeded starts by 47,000 in contrast to the negative 31,000 for single family. In total permits were 16,000 more than starts. In the recent past the differential between permits and starts for multi and single family units has been the same across all regions but this is no longer the case. In the NE permits declined for both single and multi-family and were less than starts for both. Permits and starts for both categories had positive growth in the South and West. In all regions permits for single family were less than starts. The implication is that the shift in preference for apartments is by no means over and that single family construction will slow slightly.

Fig. 8 shows the regional situation for the 3MMA of total residential starts since February 2000. In the first half of 2015 the North East had the highest growth rate driven as mentioned above by apartment construction in New York State but now that has cooled. The South is growing the fastest at present.

The National Association of Home Builders, (NAHB) confidence level dropped three points in November to 62, giving back last month’s gain. Any value above 50 indicates an overall positive business confidence. October had the highest confidence level since our data stream began in January 2009 and on a 3MMA basis, November has the highest reading, (Fig. 9). The South and West continue to be the strongest regions and the NE has finally reached 50.

Fig 6

Fig 7

Table 5

US Preliminary Steel Imports: (Long, Flat and Semis), rose 0.5% in October. The US Census Bureau reported preliminary steel imports totaled 2.987 million tons (mt). Table 6 reports the current 3 month total from August to October, and the YTD total, both comparing 2014 and 2015 totals. August to October imports fell 26.2% y/y. Year to date, the US imported 33.89 mt of steel, down 8.3% y/y. Year to date Rolled product imports fell 0.7% y/y, as semi-finished imports fell 29.5% YTD y/y. Long product imports rose 12% YTD y/y, sustained by increased rebar shipments, (Fig. 10). Table 7 displays 3 month total steel imports by country. Imports from most of the world have waned, with the exception of Ukraine (+63.4% y/y), Turkey (+35.6% y/y), Brazil (+12.2% y/y) and Taiwan (+10.6% y/y).

Preliminary steel long product imports, as reported and defined by the Steel Import Monitoring & Analysis System, totaled 588,000 tons (kt) in October, up 35% m/m. Licenses requested for the month totaled 641 kt, leaving 52 kt that could be counted in the final import numbers, (Table 8). October rebar imports doubled m/m, as the US imported 1.73 million tons (mt) YTD, a 49% increase y/y. Turkey again contributed almost 90% to the US rebar import market, with an additional 17 kt from Taiwan. Preliminary wire rod imports also rose, up 30% m/m, with increased imports from Canada (44 kt), Brazil (19 kt) and SE Asia (48 kt). Asian wire rod shipments include Japan, South Korea and Malaysia.

Products such as merchant bar quality and special bar quality steel are imported under the category hot-rolled bars, and fell for a 3rd consecutive month. MBQ and SBQ imports were down 26% y/y. More than one third of HRB products were imported from Canada, with another 30% imported from Asia, and the remainder originating from Europe. Preliminary light shape imports were flat m/m. Year to date imports of light shapes totaled 138 kt, down 16% y/y. More than 80% was imported from within NAFTA, with less than 2,000 tons imported from the rest of the world.

Heavy structural shapes including beams, rose 33% in October, led by increased imports from South Korea, Spain and the U.K. Year to date imports including October preliminary data, were flat y/y. Beam imports rose 77% in the month of October, as Asia increased their shipments by 8 kt, beams from Europe rose 9 kt and Russian beams rose 4,100 tons. Beam imports to the US YTD totaled 498 kt for a 4% increase.

Fig 10

Table 8

Unemployment Claims: New unemployment claims rose to 269,000 for the week ending November 28th, up 9,000 from the previous week. This figure has been below the 300k benchmark since February, another signal of a strengthening labor market, (Fig. 11). The seasonally adjusted four week moving average is 269,250, 10% lower on a y/y basis. This figure irons out weekly volatility in reporting. The 4WMA figure has been among the lowest on record and has also remained below the benchmark since March of this year. Another strong jobs report released on December 4th, along with the robust unemployment data may direct the FOMC into a potential rise in interest rates in December.

Seasonally adjusted continuing claims rose to 2,161,000, a relatively small jump since this figure dropped 22,000 over the last two weeks. The figure for November 21st is 9% lower than the same period last year. The four week moving average reported 2,166,500; under the 3 million mark for two and a half years, yet another signal of a tightening labor market. . Continuing claims have recovered 69% since the recession officially ended in June 2009. The number of persons claiming any type of unemployment benefit rose this week to 2.0 million. This figure has fallen more than 200,000 persons on a y/y basis.

Fig 11

ISM Manufacturing Index: The Manufacturing Index declined for the fifth straight month coming in at its lowest level since 2009 and first time below 50 in three years, (Fig. 12). The Manufacturing Index is down 20%, 9 percentage points, on a y/y basis. Production, New Orders, and Inventories all plummeted in November and fell below 50 while Employment rose to its highest level since June. The Manufacturing sector declined for the first time in three years, however, the overall economy expanded for the 78th straight month. The sector hasn’t had an increase in employment since July so the release of tomorrow’s job reports are with some trepidation.

Fig 12

ISM Non-Manufacturing Index: The ISM Nonmanufacturing Index dropped 3.2 points in November to 55.9 from 59.1. It’s at its lowest value since April 2014 and has dropped 3 percentage points on a y/y basis. Supplier deliveries rose slightly to 53.0 from 52.0. Business Activity, New Orders, and Employment all fell precipitously in November from their rebound in October, however, all categories remained above the expansionary benchmark. The Atlanta Fed Reserve adjusted their Q4 GDP forecast from 2.3% to 1.4% this week coinciding with the negative results from November’s Manufacturing and Nonmanufacturing Index releases. According to Moodys, nonmanufacturing counts for 88% of GDP.

Steel Demand Indicators: Table 9 is a snapshot of the market situation on 11/30/2015. Indicators updated since we last published two weeks ago are shaded beige. In most cases this is not November data but data that was released in November, the actual month to which the data relates is shown in the second column. Of the 26 indicators under consideration, the present situation of 5 are positive by historical standards, 9 are negative and 12 are neutral. Changes in the last month were as follows; consumer confidence fell below 100 in November and we re-classified it from positive to neutral. The producer price index of commodities rose above 190 and we re-classified from negative to neutral. There were no changes in our view of the steel long products market or of the construction and manufacturing sectors since we last published this analysis on November 12th. On November 30th of the 12 leading indicators, the present situation of 1 was positive, 4 were negative and 7 were neutral. This was an increase of one negative and a decrease of one positive since November 12th.

In our trends analysis, most of the values reported are three month moving averages to avoid the knee jerk reactions that are characteristic of most economic reports in the press. Please note that there is nothing subjective about this trends analysis. The numbers presented here are the facts available as of November 30th. The number of indicators trending positive in this latest analysis was 13 with 13 trending negative a net increase of 2 negatives since November 12th. Trend changes since our last update were as follows; consumer confidence reversed direction and trended negative for the first time since August 17th. Demand for commercial and industrial bank loans became less positive though still expanding. There were no changes in the trends of the long products steel market. Both the construction and manufacturing sectors are generally trending positive though clearly manufacturing is slowing.

Of the twelve leading indicators three are trending positive and nine negative, (Table 10). This was an increase of two negative since November 12th.
(Explanation of Indicators).

Table 9

Contributors this week include; Laura Remington, Bryan Drozdowski, Peter Wright and Steve Murphy