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December 02, 2002 01:00 AM

Home building at top of U.S. economic heap

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    Home building is at the head of the game, the U.S. economy's trump suit while other areas sputter along. Canada's housing market will outperform itself in 2003, and Mexico is poised for better economic growth overall.

    So say economists who presented their findings at the North American Construction Forecast. The event, held last month in Washington, was sponsored by Reed Construction Data, based in Atlanta, formerly known as CMD Construction Group.

    Overall, the U.S. economy and the construction industry sound like an out-of-step marching band these days, said Ken Simonson, chief economist for the Associated General Contractors of America in Washington. He predicted an uneven construction market over the next several months.

    ``Construction related in some way to consumer activity should remain strong. Business-related construction will pick up gradually in 2003 if the economy keeps strengthening, but government-funded projects are likely to diminish once current jobs are completed,'' he said during his Oct. 16 presentation.

    Since the elections now are out of the way, Simonson modified that slightly, stating that the outlook is weak for legislative and congressionally funded projects.

    ``Voters approved a record volume of bond issues on Election Day,'' he said in a Nov. 20 telephone interview, ``most of which cover school construction, and that should insulate school construction from the squeeze that other federal- and state-funded projects will feel.''

    On Election Day, voters nationwide approved 86 percent of $47.2 billion in bond authorizations.

    Employment and value put-in-place measure health of the construction industry.

    ``At the moment, both are suggesting relative stagnation in construction nationally,'' Simonson said. The Bureau of Labor Statistics, for instance, reported that seasonally adjusted construction employment nationwide in September was down almost 2 percent from September 2001. For October 2002, it was 6.5 million, a decrease of 1.6 percent from October 2001 and down 27,000 from September 2002.

    ``It's basically stagnation over short term and a decline over a long period,'' he said.

    According to the Commerce Department's Census Bureau, construction put-in-place during September 2002 was estimated at a seasonally adjusted annual rate of $836.7 billion, 0.6 percent above the revised August estimate of $831.5 billion. The September figure is 0.1 percent above September 2001.

    In residential construction, single-family construction has received most of the attention, but multifamily has been the growth sector, Simonson said.

    ``It's up 13 percent, vs. 3 percent for single-family. Can this be sustained? Doubtful,'' Simonson said, citing the high level of housing sales, which is helping to draw tenants out of multifamily housing.

    ``The single-family market may be able to remain on its near-record plateau if interest and unemployment rates stay low. ... Vacancy rates are rising and rents softening in a number of markets, and multiunit construction seems poised for a fall.''

    Of course, potential action in Iraq is overshadowing the United States. The scenario can play out several ways, with a spike in oil prices the most immediate likely impact, Simonson said. A war, of course, could damage investor and business confidence, especially if there are reprisals in the United States.

    ``On the other hand, a war that ended quickly and successfully would be a huge plus for confidence worldwide, helping business investment, exports and foreign travel to the U.S. For now, I'll pick the no-war, no-recession, slow-growth scenario. But I don't have a lot of confidence in my prediction.''

    On Nov. 20 the Census Bureau and the Department of Housing and Urban Development released the latest data on housing starts: Privately owned housing starts in October came in at a seasonally adjusted annual rate of 1.6 million. That's 11 percent below a revised September estimate of 1.8 million, but 4.7 percent above the rate of 1.5 million in October 2001.

    ``It's still a pretty healthy number,'' said Simonson, who recommended looking at a three-month average instead of individual months. ``Any year before 2001, home builders would have been delighted with that number.''

    The land up North is doing better than the United States from the growth standpoint of gross domestic product this year, according to Reed Construction Data. That trend is supposed to continue into 2003. Canada's housing market is at a 10-year high with close to 200,000 starts, well above a more sustainable rate of 160,000, said Roger Grant, vice president with the firm. In 2003, that figure should decrease about 10 percent. Because of overall general strength in Canada's economy, Reed Construction Data predicts all nonresidential sectors will make a comeback in 2003.

    Grant delivered the outlook for Mexico as well. Its economy is expected to grow at a 4 percent rate in 2003, fueling construction market growth of more than 5 percent in 2003, he said in information released by Reed. Inflation rates are supposed to be less than 5 percent this year, moving below 4 percent in 2003. Deficits are declining, and there's an increase in U.S. funds becoming available for economy housing mortgages. According to Reed, more than 50 percent of total construction value in Mexico is in housing.

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