Good News, Possible Bad News on the Construction Front

Wow, it's been a few weeks since I last posted, so there's a lot to get caught up on.  Some of this news is a bit stale, so I'll keep it brief.

First, the sort of bad news:  After going on a tear over 2012, the National Association of Homebuilders Housing Market Index (HMI) declined in February from 47 to 46.  Any HMI less than 50 indicated that homebuilders see sales conditions for houses as poor (conversely, an HMI greater than 50 means the sales climate is good in the eyes of homebuilders).  As I have said in the past, I'm not entirely interested in homebuilding as a sector of the construction industry, but it is a leading indicator for other types of construction (commercial, industrial, infrastructure, etc.).  While a decrease is not good, it needs to be put in perspective:  the HMI and number of housing starts increased crazily in 2012 (HMI in particular).  It's not uncommon for markets to take a break.  Let's wait to see if an actual downward trend emerges before hitting the panic button.

More recently, it was reported that the price of lumber dipped slightly recently (it's around $400 per 1,000 board feet).  Again, it has been going up over 2012 and this may just be a reaction to the small decline in HMI. A few months of data is still needed to see if this trend has staying power or if prices will start rising again.  You can see how the price of lumber has changed over time here.

The decline in prices may actually prompt corporations to start investing, and a recent headlines seem to indicate that's the case.  Corporate capital spending plans have exceeded that predicted by Wall Street and have held up lately.  The corporate spending on capital expenditures, or capex, includes offices, plants and machinery.  This is the sector of the construction economy I am interested in because it's the one that hires the contractors most of the students that graduate with a Construction Management degree from Sac State will work for.  Capex spending  for 2013 is predicted to be the highest it's been in over the past four years.  That's good news if it holds up, which leads me to...

Any recovery, new or continued, is a function of sidestepping any issues tied to the sequestration.  Hopefully our government will find some sort of palatable compromise so that we don't shoot our recovery in the foot.