For the full text of this month's economic analysis, check Economic Outlook at ConstructionEquipment.com
Spending expanded about 4.5 percent during the summer after only marginal growth during the spring. Stubbornly low mortgage rates kept home construction growing; rising rents and falling vacancy rates restarted expansion in nonresidential buildings; but heavy construction activity declined. Look for overall market growth to slip to a nominal pace through the winter as residential construction declines.
Spending fell 6.2 percent from May to August as the highway funding impasse has sharply reduced contract awards this year and current projects are completed. Locally funded work is now growing in line with improved budget balances. The extension of the 2003 highway funding level into next spring ensures that highway spending will struggle to keep up with inflation until additional funding become available.
Industrial production increased 7.4 percent over the past 15 months. Domestic consumption purchases fueled the initial growth, but the key driver is capital goods. Factory production growth slipped from a 6.5- to a 5-percent annual rate during the spring and summer. It will return to 7 percent at the end of 2004 and through 2005 as accelerating economic growth in Europe, Canada and Mexico boosts U.S. exports.
Prices are 4.3 percent above a year ago after averaging 1.3-percent annual gains in the previous four years. Higher steel prices account for a small share of the inflation; most of it results from higher supplier margins in a booming market. Equipment sales have risen 40 percent in the past year. Yet declining order backlogs suggest that sales growth, margins and price increases will all narrow next year.
Growth slowed in the second quarter to 3.3 percent from a 5-percent average over the previous four quarters. The slowdown reflects the depressing impact on consumers of high oil prices, rising credit rates, unseasonably wet and cool weather, and the end of boosts in income from federal tax cuts. Spending has already rebounded enough from the depressed spring level to bring economic growth to near 4 percent in the summer. Expect about 4.0-percent growth through 2005.