WEX Fuel Consumption Index

WEX Construction Fuel Consumption Index May 2013

The WEX Construction Fuel Consumption Index, which tracks fuel consumption by U.S. construction companies, declined by 0.74% in April 2013 versus the previous month. April’s reading follows a 1.2% decline for the seasonally adjusted index in March. On an annual basis, the Fuel Consumption Index expanded by 3.2% in April from its level a year earlier, the seventh consecutive month of positive year-over-year growth for the index.

Following the April release of the FCI for March, additional government data releases reflected the weakness indicated by the seasonally-adjusted index in March. Total construction put-in-place, which is released a month later than the construction FCI, declined by 1.7% in March. In the same period, construction spending excluding improvements—a better measure of activity—also fell by 1.7%. Private residential construction, excluding improvements, rose 1.4%. Total housing permits dropped in March, declining by 3.9%, a sign that builders were letting up on the accelerator after stepping down on it in February. Single-family permits slipped 0.5%, while multi-family permits plummeted 10.4%. Meanwhile, housing starts jumped 7.0% in March, to an annual rate of 1,036,000. Construction employment lost 6,000 jobs in April, but the employment report was otherwise positive, as total employment expanded by 165,000 jobs.

Despite April’s month-to-month decline in the WEX Fuel Consumption Index, the housing market has been showing signs of improvement. New home sales climbed 1.5% in March to a 417,000-unit annual rate. Meanwhile, existing home sales eased 0.6% in March. Total inventory increased 1.6%, but remains extremely lean. Home prices continue to rise thanks to lean inventories, low interest rates, the growing economy, and the decreased share of distressed homes. Higher home prices, in turn, are bringing more builders into the game. The housing market is expected to continue to improve and outperform the rest of the economy over the next few quarters, due to the low level of housing inventory and low interest rates. The recovery in housing would be even stronger were it not for the difficult lending requirements facing would-be buyers.

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.

Background:

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.

Methodology:

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 year-over-year growth rates from January 2002 to April 2013 was 0.884 for the number of new single-family homes for sale.

Indicator	Correlation
New Single-Family Homes For Sale	0.884
New Single-Family Homes For Sale - Under Construction	0.763
S&P/Case-Shiller Home Price Index - Composite 20 Index	0.806
Construction Employment	0.766
Total Construction Put-in-Place	0.733
Average Sales Price of Existing Single-Family Homes Sold	0.708
Total Private Housing Under Construction	0.592
New Single-Family Homes Sold - Completed	0.660
Residential Construction Put-in-Place	0.598
Average Sales Price of New Single-Family Homes Sold	0.571
Median Sales Price of New Single-Family Homes Sold	0.535
Total Housing Completions, Private	0.487
Nonresidential Construction Put-in-Place	0.401
New Single-Family Homes Sold	0.308
Total Private Housing Starts	0.255
Housing Permits, Private	0.251
New Single-Family Homes Sold - Under Construction	0.090

About WEX (www.wexinc.com)

WEX Inc. (NYSE: WXS) is a leading provider of corporate payment solutions. From its roots in fleet card payments beginning in 1983, WEX has expanded the scope of its business into a multi-channel provider of corporate payment solutions representing more than 7.6 million cardholders and offering exceptional payment security and control across a wide spectrum of business sectors. The Company’s operations include WEX Bank, Fleet One, Pacific Pride, rapid! PayCard, Wright Express Prepaid Cards Australia, Wright Express Fuel Cards Australia, Wright Express New Zealand and CorporatePay Limited, England, as well as a majority equity position in UNIK S.A., Brazil. WEX and its subsidiaries employ more than 1,300 associates.

About IHS (www.ihs.com)

IHS (NYSE: IHS) is the leading source of information and insight in critical areas that shape today’s business landscape, including energy and power; design and supply chain; defense, risk and security; environmental health and safety (EHS) and sustainability; country and industry forecasting; and commodities, pricing and cost. Businesses and governments around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS employs approximately 4,400 people in more than 30 countries around the world.

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May 2013 - WEX Fuel Consumption Index