Weekly Market Update - July 2, 2014

Non-Residential Starts, (Dodge) were up 7.3% y/y and up 7.1% three months y/y, (Table 1). A total of 1087.2 million square feet were constructed including apartments greater than four stories. Apartment construction >4 stories totaled 219 million square feet or 20% of the total, the largest segment by far. Excluding apartments, y/y non-residential construction was up 7.2%. Charting the data presents a visual of the significance that apartment (>4 stories) has had on the Dodge starts since the recession ended, (Fig.1) and (Fig. 2).

Overall momentum (3 month data minus 12 month data) is flat (-0.1%), however on an encouraging note, many project categories are posting double-digit momentum gains to include: Education, office & banks, hotel/motel, manufacturing plants, transportation, civic, food & beverage and religious buildings. Project categories with negative momentum include: warehousing, apartments, retail, medical and recreational.

  Table 1

Fig 1

Steel Shipments, (SMA): Apparent supply (domestic mill shipments + imports) of all long products increased 10.7% three months ending May y/y and 8.1% over the past 12 months. The largest increase was for beams, up 21.3% three months y/y and 12.8% over the past 12 months. The smallest growth was in merchant bars, up 2.8% three months y/y and 0.6% over the past 12 months, (Table 2). YTD import market-share increased 2.7 points to 21.3%, up from the same period last year, led by wire rod which has witnessed the greatest assault, YTD at 42.7%, up 6.8 points YTD y/y, (Fig. 3).

U.S. mill shipments (domestic mill shipments + exports) of all long products increased 5.8% three months ending May y/y and 2.5% over the past 12 months. Wire rod shipments were off 4.5% y/y, but were up 1.1%, 3 months y/y. Structural shipments were up 7.2% y/y and 9.2%, 3 months y/y, while reinforcing bar shipments posted 2% y/y growth y/y and 5.9%, 3 months y/y. Momentum was positive in every product category except structural angles & channels which was negative 3.1%.

Table 2

Construction Put-in-Place, (U.S. Commerce Dept.): Each July, the Commerce Department makes revisions going back several years. This July the revisions went back to 2008. The net result is that the construction recovery was worse than previously stated. The tables and charts in this report have been revised to reflect these revisions.

Total construction put-in-place through May was up 7.4% y/y and 6.4%, 3 months y/y. Private construction was up 10.7% y/y and 8.8%, 3 months y/y. State and local construction moderated to down 0.5% y/y and flat, 3 months y/y, (Fig. 4). State and local momentum recorded was positive 0.5% for the first time in five months. Single family residential construction grew by 20.8% y/y but momentum has declined as the 3 month y/y reading was 11.3% resulting in decidedly negative momentum of -9.5%. Overall momentum was down by -1.0%, (Table 3).

Non-residential construction (NRC) put-in-place was up 4.4% y/y and 5.3%, 3 months y/y. Private NRC increased by 8.9% y/y, slowing a bit to 7.9%, 3 months y/y undoubtable influenced by the severe winter weather earlier in the year. State and local NRC was -5.1% y/y, but moderated to just -0.1%, 3 months y/y in an encouraging sign. Apartments >4 stories surged by 35.4% y/y, falling to up 31.4%, 3 months y/y. Commercial construction increased by 8.4% y/y and 6.1% 3 months y/y, while office construction appears to have turned the corner, up 11.8% y/y and a much stronger +19.9%, 3 months y/y, (Table 4).

Fig 4 

Table 4

ISM Index: The institute of supply management manufacturing index posted a strong 55.3 in June and has now been greater than 50 (expansionary) for 19 consecutive months. The new orders sub-index increased by 2 points to 58.9. The inventory and employment sub-indexes were unchanged. These results are encouraging and indicate that the manufacturing sector is performing well despite the weather related drag over the first quarter, (Fig. 5).

Fig 5

Consumer Confidence Index rose in June to 85.2, the highest reading since January 2008. The Index was up three points from May. The Present Situation sub-index rose dramatically to 85.1 from 80.3 in May. This sub-index was up 24% on a y/y basis and is at its highest level since Q1 2008. The Expectations sub-index also rose in June, sparking consumer optimism as the summer season begins. The sub-index was down from last June’s three year high but has remained above 80 for four consecutive months. Buying expectations rose for all three categories: auto, home, and appliance. Labor market conditions were mixed as consumers who expected income to increase dropped while those who thought jobs were plentiful increased even as job created has averaged 231,000 jobs a month over the past four months, (Fig. 6).

Fig 6

Global Business Confidence rose this week after a 4% decline last week. The average for 2014 is 35.2%. The index is up 38.3% on a y/y basis. North American business confidence rose to a two month high coming in at 41.2%. Results were mixed across the board with slight changes except for Hiring Intentions, which rose nearly 4% from last week, and the Present Situation, which fell roughly 5% from the previous week. This is the 89th straight week with a reading above 20%, the minimum benchmark for an expanding economy. Hiring intentions has remained above 20% for the 39th consecutive week dating back to the first week of October. This figure coincides with net job creation, which totaled 1.66 million since October 2013. There may be a strong correlation between the two, having the Hiring Intentions readings remaining strong during the release of previous month job creation, (Fig. 7).

Fig 7

State Fiscal Year End Balances: Each June the National Governors Association publishes its Fiscal Survey of States. Fig. 8 shows total balance levels of $55.4 billion or 7.4% of general fund expenditures in fiscal 2015. Total balances include budget stabilization, “rainy day” funds and are a crucial tool that states rely on during fiscal downturns and budget shortfalls. The current projections for 2014 and 2015 appear to suggest that budget reserves are fairly sufficient across states, but the totals are misleading. The balances for Texas and Alaska account for 37.7% of total state balances in 2015. The balance levels for all individual states can be seen in Figure 7 of the June report; Removing Texas and Alaska shows that the remaining 48 states have an average year end balance of 3.5% and 3.0% for 2014 and 2015 respectively. This is below the 5% level that is considered to be healthy. Medicaid is estimated to have accounted for 24.4% of total state spending in FY 2013 and was the single largest portion of state expenditures. The implementation of the Affordable Care Act will greatly increase the number of people enrolled in the Medicare program in 2014 and beyond. This increase is estimated to be 5.8 million people in 2014 and 18.4 million by 2022. State budget pressures will continue to impact their construction expenditures for the foreseeable future and will therefore continue to be a drag on steel consumption.

Fig 8

Contributors this week include; Brian Drozdowski, Peter Wright and Steve Murphy