Weekly Market Update - October 30, 2014

Portland Cement Consumption surged nationwide by 17.1%, 3 months y/y in July, led by a 16.5%, 3 months y/y jump in the South Atlantic region. Within the South Atlantic region, the state of Georgia and Maryland consumed 32.1% and 31.2%, more cement, 3 month y/y. North Carolina was up 20%, 3 months y/y and Florida, the volume leader consuming 34% of the total South Atlantic regions Portland cement saw a 13.1%, 3 month y/y increase. All census regions posted gains as illustrated in Fig. 1. The total consumption of cement in the U.S in July was 27.5 million metric tons over the three month period ending July. The July 2014 total was 9,942 MMT, the best July recorded since the 10,553 MMT posted in July 2008. Momentum (defined as 3 month percentage minus 12 month percentage), was up for the fourth month in row, (Fig. 2). This figure illustrates the erratic nature of this recovery, with several starts and stops on growth rate and momentum.

Fig 1

Non-Residential Vacancies, RIES: On the national front the situation has improved in each of the four summary categories on a year over year basis in the second quarter. Vacancies were lower and absorptions were greater than completions in each category, (Table 1). Office vacancies have remained stubbornly high and have come down just 0.2% points to 16.8% nationally, (Fig.3). Office vacancies were the lowest in the Northeast at 14.2% and the highest in the West at 17.1%. Apartment vacancies nationally were just 4.1%, down from 4.3% y/y, (Fig. 4). This low rate has prompted strong construction growth in this sector. The pace for 2014 is projected at 191,814 units to be completed, far more than the 134,520 completed in 2013. Average national rent was $1,100 per month in Q2 2014, up from $1,064 for Q2 2013. Nationally retail vacancies fell 0.2% Q/Q to 10.3%, (Fig. 5). The region posting the lowest vacancy rate was the Northeast at 8.8%, while the Midwest recorded the highest rate at 12.9%. The industrial sector recorded the largest percentage point decline in vacancy rate Q/Q with a drop of 0.4% to 9.1%. Construction activity in this sector has been gaining strength in successive years since 2011, driven by the upsurge in internet shopping, (Fig. 6).

Table 1

Regional Job Creation. Q3 2014: All regions had solid job creation in the 3rd Q led by the South Central with 138,800 new positions, (Table 2). Of the total jobs created in the South Central, Texas contributed 111,000. The states compile their employment numbers independently of the Feds then both are reported by the Bureau of Labor Statistics. The results are close with the Feds reporting total job creation in Q3 of 671,000 and the states reporting 661,100. The regions have fared very differently since the pre-recession high of 1st Q 2008 and since the low point of 4th Q 2009. There are now 1,440,000 more people employed than there were immediately before the recession but of that number 1,201,000 jobs were created in the South Central. All other regions in total contributed 239,000 ranging from the Pacific with positive 233,000 to the East North Central with negative 283,000 jobs. Employment is now 9,870,000 positions higher than it was at the low point of the recession, (Table 3). The Pacific has had the largest number of jobs created in that time period with 1,799,000 new or recovered positions which amounts to 9.7% of total employment. On a percentage basis the South Central leads with an employment increase of 11.9% and the North East lags with 4.8%.

Table 2

Consumer Confidence October 2014: The consumer confidence index as reported by the Conference Board bounced back in October and the dismal September results were revised upwards. The composite rose from 89.0 (first reported as 86.0) to 94.9, the view of the present situation rose from 93.0 (first reported as 89.4) to 93.7 as expectations rose from 86.4 (first reported as 83.7) to 95.0. The 3MMA of the composite, the view of the present situation and expectations are shown in Fig. 7. The present situation component has been much more volatile that expectations since our data began 34 years ago. History suggests that we are now entering a period when the view of the present situation will move ahead of expectations. On a year over year basis using a 3MMA the composite is up by 14.3 lead by consumers view of the present situation which is up by 21.4, (Table 4). The employment sub-indexes, job availability and wage expectations, are improving. Intentions to buy both a house and an appliance became negative in May year over year and continued to be negative each month since then. May was the first time in over a year that housing had been negative. Compared to the same month a year ago, intentions to buy a car have been positive each month since May.

Fig 7

Preliminary Long Products Imports, (SIMA): September preliminary long product imports were up 2% over August final imports. YTD imports plus preliminary September totaled 4.476 million tons (Mt), a y/y increase of 23% compared to long product imports YTD through September 2013. Rebar preliminary imports fell 18% m/m, yet imported 17,000 tons more than licenses requested for September. YTD rebar imports plus licenses totaled 1.023 Mt, for a y/y increase of 12%. Heavy Structural preliminary imports declined 10% in September, totaling 648,000 tons. YTD, y/y structural imports have shot-up 46%. Beams account for the majority of heavy structural 405,000 tons of 648,000 total tons imported YTD. Wire rod preliminary imports surged 39% over August imports, and exceed YTD 2013 imports, by 84% y/y. Keep in mind that more than 55% of U.S. imported wire rod originate from our NAFTA trading partners. Merchant bar and light shape preliminary imports both fell, by 26% and 29% respectively in September. Yet on a YTD, y/y basis both are up considerably (33% and 19%). SBQ imports rose slightly in September from August, totaling 1.216 Mt YTD, down 8% y/y compared to 1.327 Mt imported through September 2013, (Table 5).

Table 5

Non-Residential Construction, (Dodge): Overall NRC starts were up 8.7% y/y and 9.2%, 3 month y/y indicating slightly positive momentum of 0.5% for the month ending September 2014. Breaking down the detail by project category yields a wide variance in growth. Looking at the y/y data on a percentage change basis, hotel/motels posted the strongest growth, up 44.3%, while offices recorded 29.9% growth y/y. Warehousing and apartments continue to perform well, up 15.4% and 10.3% respectively. Laggards include; Food and beverage, (-20.8% y/y), religious (-14.1% y/y) and medical (-9.5% y/y), (Table 6). On a square footage basis, apartments (238 million) and warehouses (164 million), together account for 35% of the total NRC over the past 12 months. Fig. 8 illustrates the effect on the trajectory of potential growth moving forward for each of three scenarios; 1] All NRC, 2] NRC excluding apartments greater than four stories (these are included in NRC because they can be constructed from structural steel and or reinforced concrete) and 3] NRC excluding apartments and warehouses. Without apartments and warehouse construction, NRC starts has barely budged off its recession lows and the growth outlook is weak. For this situation to turn-a-round we need to see a pronounced rebound in institutional construction spending to include: schools, government/civic buildings, hospitals and transportation.

Table 6

Durable Goods orders decreased slightly in September’s advanced numbers release, falling 1.3% from August. The total dollar value was $241,633 million. This month’s number is down nearly 20% from July’s all time high of $299,862 million. The largest increase came from defense capital goods new orders with a 7.4% jump from the previous month while the biggest decline was from communications equipment with a loss of 16.6%. Non-defense core capital goods orders, which are a widely used indicator of business investment in the GDP calculations, fell 5.1%. This number comes after two volatile months with an increase of 60.9% in July followed by a 36.5% fall in August. This was in part due to Boeing airplane orders as the aircraft segment increased more than 300% in July. Despite a decline in September, consumer confidence has reached highs not seen since 2007, (Fig. 9).

Fig 9

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