Vol. 3, No. 41

October 6-10, 2003

The producer price index (PPI) for finished goods rose a seasonally adjusted 0.3% in September and 3.5% over the past 12 months, the Bureau of Labor Statistics (BLS) announced today. But the “core” index, which omits food and energy costs, crept up a mere 0.1% since September 2002. The index for construction machinery and equipment was up 0.1% for the month and 1.5% for the past 12 months. Among intermediate materials, the PPI covering materials and components for construction rose 0.8% for the month and 2% for the 12-month period. Among crude-materials indexes, the PPI for construction materials rose 0.9% in the month and dropped 0.5% from September 2002. BLS commented, “Prices for materials and components for construction advanced 0.9% in September, compared with a 0.1% increase in the prior month. The index for softwood lumber jumped 10.2%, following a 0.4% gain in August. Prices for plywood, treated wood, and millwork also moved up at a faster rate in September than they did in the prior month. The indexes for gypsum products and plastic construction products turned up, after falling a month earlier. On the other hand, prices for concrete products declined 0.4% in September, following a 0.2% rise in the preceding month. The indexes for paving mixtures and blocks and for wiring devices also fell, after advancing in August. Prices for fabricated ferrous wire products showed no change, following an increase in the previous month. The steel mill products index rose less than it did a month earlier.”

Chain-store sales were positive in September, with several chains doing better than they had forecast. An index of 77 chains tracked by Bank of Tokyo-Mitsubishi yesterday showed that sales at stores open more than a year climbed 5.9%, the best year-over-year change since March 2002. In related construction news, Family Dollar Stores, “which operates more than 5,000 stores, said it plans to open another 565 in the current fiscal year [which began August 31]. It estimated capital spending at $275 million for the year,” Reuters reported October 1. Wal-Mart announced early last week that it plans to add 220-230 “supercenters” and 50-55 discount stores in the year beginning next February 1. “The discount retailer said relocations or expansions of existing discount stores will account for about 140 of the supercenters, while the remainder will be built in new locations,” the Wall Street Journal reported October 1.

Office-building completions “were down significantly in the third quarter,” the Journal reported Tuesday, citing data from real-estate research firm Reis Inc., “with just 4.1 million square feet of new space coming online. That is 40% less than in the second quarter and 68% less than in the third quarter of 2002….The vacancy rate rose to 16.8% in the third quarter from 16.6% in the second quarter and 15.7% a year earlier, according to a survey of the top 50 U.S. markets….So-called absorption, or the net amount of space gained or lost in the market, was negative for the 10th time in the past 11 quarters.” Reis also reported that “The average vacancy rate for apartments in the top 50 markets fell to 6.6% in the third quarter, from 6.7% in the second period, but was still significantly higher than the year-earlier rate of 5.9%....Reis expects new units to exceed new rentals in the fourth quarter, pushing the vacancy rate up to 6.9%, which would be the highest it has been in more than a decade.”

An October 2 report by Jane Gravelle of the Congressional Research Service, “Capital Income Tax Revisions and Effective Tax Rates” (Order Code RL32099), finds that the 30% and 50% “bonus depreciation” provisions enacted in 2001 and 2003 for newly purchased equipment, but not structures, reduced average effective tax rates for equipment from 26% to 20% and 15%, respectively. The “effective rate” differs from the statutory rate by taking into account the timing of future deductions. The average effective rate for construction machinery went from 23% to 18% to 13%. “Structures overall [went from 32% to 30% to 29%] but that average reflects favorable treatment for mining, farm, and public utility structures (the latter are generally treated as equipment in the tax law). Buildings are taxed at rates in excess of the statutory tax rate.” Over time, this differential will steer investors away from buildings and from industries that rely more on structures than on equipment.

Arnold Schwarzenegger's election Tuesday as governor of California overshadowed another ballot measure. “Californians on Oct. 7 defeated a measure that would gradually have committed up to 3% of state general fund revenue in good times for infrastructure,” the Bureau of National Affairs, Inc.'s Daily Report for Executives reported Thursday. “Proposition 53, which did not raise taxes but redirected existing money, would have split funds between local and state governments for infrastructure projects…The measure would have mandated funding and offered lawmakers little flexibility, opponents argued. [The proposition contained] language preventing money from being spent on school or community college projects.”

The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics.