The WEX Construction Fuel Consumption Index Decreased on a Monthly Basis in July 2013
The WEX Construction Fuel Consumption Index, which tracks fuel consumption by U.S. construction companies, decreased by 0.02% in July 2013 versus the previous month. July’s reading follows a 0.51% decrease for the seasonally adjusted index in June. On an annual basis, the Fuel Consumption Index rose by 2.34% in July from its level a year earlier. The index has been trending upward, and has increased on a year-over-year basis in nine of the last ten months.
Following the July release of the FCI for June, additional government data releases were generally consistent with the 0.51% decline indicated by the seasonally-adjusted index in June. Total construction put-in-place, which is released a month later than the construction FCI, declined by 0.6% in June. In the same period, construction spending, excluding improvements—a better measure of activity— fell by 1.0%. Private residential construction, excluding improvements, fell by 1.15%. Housing permits continued to slide in June, falling 7.5% to a 911,000 annual rate. Builders are dealing with a backlog of permits after April's surge. Single-family permits rose 0.6% to a 624,000 annual rate. The more volatile multifamily category dropped 21.4%, to a 287,000 annual rate. Meanwhile, housing starts dropped 9.9% to an 836,000 annual rate, possibly hampered by poor weather conditions. May's starts were revised up to 928,000 from a 914,000 annual rate. While the U.S. job market continues to improve with 162,000 jobs added in July, construction employment showed little change in July. The overall unemployment rate in the country fell to 7.4%.
Despite the lack of growth in the WEX Construction Fuel Consumption Index in July, the housing market has been showing signs of improvement. New home sales rose 8.3% in June (m/m) to a 497,000 annual rate—a five-year high. Meanwhile, existing home sales slid 1.2% in June, to a 5.08-million-unit annual rate. Prices are being pushed higher by tight inventories and a lower share of distressed sales (down 3 percentage points, to 15%). The months’ supply of single-family homes inched up, but remains near historical lows. Underwater mortgages, where owners can’t readily sell their homes, are part of the reason inventory is so tight—but as prices rise, more and more properties rise above the water line. Tight inventories are the main force holding sales back, so as rising prices coax more homeowners into the marketplace, sales should pick up. Rising mortgage rates have primarily affected refinancing, not purchases. Data on loan applications show that since rates started rising in April, the volume of refinancing applications has tumbled, but the amount of purchase applications has held steady. Demand is still strong, but some of that demand goes unsatisfied for want of accessible credit. Standards are still very high, making it difficult for those with less-than-stellar credit scores to take out a mortgage.
Note: The “value of construction put in place” is a measure of the value of construction installed or erected at the site during a given period. For an individual project, this includes — cost of materials, cost of labor, contractor's profit, cost of architectural/engineering work, miscellaneous overhead and interest/taxes.
WEX worked with IHS Global Insight to develop the WEX Construction Fuel Consumption Index. The index is based on monthly fuel consumption statistics for the construction industry tracked by WEX’s comprehensive fuel consumption database. The WEX Construction FCI provides unique fuel transaction information that can be used to identify emerging trends in the construction industry. By tracking the volume of fuel consumed by construction companies in the United States, the index provides an accurate and up-to-date indication of construction activity in the country. In fact, the WEX Construction FCI is available a full month before the Bureau of the Census data gets released.
The WEX Construction Fuel Consumption Index (WEX Construction FCI) was developed by IHS Global Insight with support from WEX. The index is based on monthly fuel consumption statistics for the construction industry tracked by WEX’s comprehensive fuel consumption database. The WEX Construction FCI provides unique fuel transaction information that can be used to identify emerging trends in the construction industry. By tracking the volume of fuel consumed by construction companies in the United States, the index provides an accurate and up-to-date indication of construction activity in the country.
The construction industry was defined by 1987 Standard Industry Classification (SIC) codes 15 (General building contractors), 16 (Heavy construction contractors), and 17 (Special trade contractors). Data from WEX’s fuel transaction database was "cleaned" based on a criteria developed by IHS Global Insight with input from WEX. The sample included only accounts that had been active for at least two years. In this way, IHS Global Insight was able to effectively capture the construction market's fuel consumption activity. In order to create an accurate index, the fuel consumption data from each SIC industry code were weighted based on the number of companies in each industry.
IHS Global Insight analyzed the relationship between sixteen different construction and housing indicators and the construction sector fuel consumption data provided by WEX. Correlation tests were conducted on each of the indicators against the volume of gallons consumed, the volume of gallons consumed per effective fueling day, and the volume of gallons consumed per active card per effective fueling day. All series were tested at seasonally adjusted rates, as well as non-seasonally adjusted rates.
The indicators were tested at monthly, quarterly, and annual frequencies. We found that the greatest insights were produced using the year-over-year percent change of the monthly data. After determining the top three indicators, additional correlation tests were conducted to determine the optimal transformation of the WEX fuel consumption data. Through this analysis, it was revealed that the WEX Construction FCI for construction was a particularly strong indicator of the value of total construction put-in-place, construction industry employment, and new home sales in the United States. The overall correlation based upon monthly and year-over-year growth rates from January 2002 to July 2013 was 0.858 for the number of new single-family homes for sale.
|New Single-Family Homes For Sale||0.858|
|S&P/Case-Shiller Home Price Index - Composite 20 Index||0.779|
|Total Construction Put-in-Place||0.748|
|New Single-Family Homes For Sale - Under Construction||0.713|
|Average Sales Price of Existing Single-Family Homes Sold||0.677|
|New Single-Family Homes Sold - Completed||0.618|
|Residential Construction Put-in-Place||0.576|
|Total Private Housing Under Construction||0.534|
|Average Sales Price of New Single-Family Homes Sold||0.534|
|Median Sales Price of New Single-Family Homes Sold||0.498|
|Total Housing Completions, Private||0.455|
|Nonresidential Construction Put-in-Place||0.418|
|New Single-Family Homes Sold||0.261|
|Total Private Housing Starts||0.236|
|Housing Permits, Private||0.212|
|New Single-Family Homes Sold - Under Construction||0.073|
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