Monthly Archives: January 2011


Spending on Construction Stays Steady

A slow recovery period is projected for the nonresidential construction industry this year, and 2011 spending levels are not anticipated to be enough to show growth over 2010 figures.

While activity for institutional projects should hover near 2010 levels, there is likely to be a modest decline in commercial construction.

Overall nonresidential construction spending is expected to decrease by two percent in 2011, with 2012 seeing an increase of five percent in inflation adjusted terms.

These are highlights from the American Institute of Architects (AIA) semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters.

“The key factors that have prevented an accelerated recovery include historically low lending rates for real estate projects, the lingering effects of general overbuilding and an unfavorable bond market that has hampered the ability for municipalities to get the requisite funding to build new schools and hospitals,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA.

“Conditions should improve later this year and gain momentum as we move into 2012, particularly for hotel, retail and office building projects.

Two areas that are of concern that may adversely affect the design and construction industry are the increasing federal budget deficit that will force private sector borrowing costs to increase, and the likelihood that energy costs will increase in the coming years – as crude oil prices have doubled from their recent low in 2009.”

With the first Reserve Bank Board meeting for 2011 scheduled for Tuesday, it’s opportune to do a stock take of our current economic fortunes.

First there is inflation. The December quarter figures confirm that inflationary pressures are well contained with prices up just 0.4%. In fact, the number of goods that are lower in price than a year ago is the highest for at least 20 years and probably the highest on record. And underlying inflation is at decade lows. Sure, the floods will lift food prices, but at the same time, retailers are engaged in massive discounting, keeping inflation in check.

Second, there are the gauges of activity across the economy. The Performance of Services index has been below a reading of 50 for the past 10 months – indicating that the sector is going backwards. The equivalent indexes for manufacturing and construction are showing similar trends – that is, the sectors are contracting.

Then there is the housing sector. New building approvals fell 4.2% in November, the seventh decline in eight months. Over this time period building approvals have fallen by 23% so it is clear that home building has started 2011 in poor shape.

And retailers also aren’t cheering at present. Retail spending rose 0.3% in November after a 0.8% slide in October. Annual growth of retail spending is close to the lowest levels seen in the past five years while chain store sales are growing at the slowest pace in 16 years. Retailers are actively discounting because consumers won’t spend and the news doesn’t look like getting better any time soon.

Then there is the job market. Up until recently, the job market had been the stand-out with employment rising strongly since June. But in December employment rose by just 2,300 positions while the Advantage job ad index fell by 2.3% in the month – the biggest fall since July 2009.

And then there are the floods, disrupting coal production and general business activity. Certainly the repair and refurbishment activity will lift economic growth in the future. But that is still down the track.

Overall it is clear that the economy has lost momentum, perhaps even contracting slightly in the December quarter. And at the same time, inflation is under control. So the Reserve Bank can sit tight on interest rates – there is no need to be lifting or cutting rates at present. We still believe that the economy will get over this flat patch, especially with our resources in big demand by Asian economies. But rates are going nowhere for now.

The week ahead

With schools returning after the long summer break, no doubt more investors will be back at their posts. And there will be a barrage of Australian and US economic data to welcome people back in the coming week.

In Australia, private sector credit or lending figures are released on Monday together with the RP Data-Rismark home price index. Credit probably rose modestly in December, up 0.2%, while another soft result on home prices is expected after the November rate hike.

On Tuesday the Reserve Bank Board meets while the Performance of Manufacturing index and the Bureau of Statistics house price series are released. The Reserve Bank won’t be touching rates, but investors will closely dissect the accompanying statement to gauge any subtle shifts in emphasis.

On Wednesday the Bureau of Statistics will release price data on a raft of food items. The Bureau plans to cease production of this series – a huge disappointment as this is the only publication that details the actual prices of items regularly purchased by Aussie consumers.

On Thursday, building approvals, international trade and the Performance of Services index will be released. We expect that building approvals improved modestly in December, lifting by 2%. And a trade surplus of $1.8 billion is tipped for the month.

And on Friday the Reserve Bank releases the Statement of Monetary Policy which should include estimates of the impact of the floods on the broader economy.

In the US, the week kicks off with data on personal income and spending on Monday. Economists expect firm readings with income up 0.4% and spending up 0.5%. Purchasing manager surveys for New York and Chicago are also released.

On Tuesday the ISM manufacturing gauge is released together with construction spending and car sales figures. Any reading for the ISM gauge above 50 means manufacturing is expanding and the current result stands at 57.0.

On Wednesday the Challenger job layoff series and ADP employment survey are released – two useful readings on the state of the job market. The ADP survey reported that 297,000 jobs were created in December, but that strength wasn’t picked up in the official non-farm payrolls report.

On Thursday, the ISM services index is released together with factory orders, productivity and the weekly jobless claims data (new claims for unemployment insurance).

And on Friday, the January non-farm payroll report is released – the official gauge on job market conditions in the US. While unemployment fell in the latest month, the concern was that this reflected people giving up the search for jobs, not more people finding work.

Sharemarket

The quarterly US profit-reporting or earnings season continues in the coming week, although the majority of bellwether companies have already issued earnings. Among companies reporting on Monday are Exxon Mobil and Anadarko Petroleum. On Tuesday earnings are expected from Lexmark and BP. Profit results on Wednesday include those from AOL, Time Warner, YUM! Brands and News Corp. On Thursday Kellogg, Mastercard and Merck release earnings. And on Friday Fortune Brands will be among a small group of companies to report their results.

So far in the US earnings season, around three-quarters of S&P 500 companies have beaten market expectations with their results – consistent with profit-reporting seasons over the past year or so.

Also in the coming week the Australian earnings season will have its customary slow start with a number of small and mid-sized companies to release half-yearly profit results.

Interest rates, currencies & commodities

In 2010 the Australian dollar was the second strongest currency in the globe, lifting by 12% against the greenback. So how is it faring in 2011? The first month of the year is almost over and the Aussie dollar is actually in the cellar, rather than on the top shelf. Of 120 currencies monitored, the Aussie dollar has eased by 2% against the US dollar, giving it a ranking of 113. Interestingly other high performers from last year are also under-performing with the Japanese yen, South African rand, Thai baht and Mongolian tugrik all lower against the greenback since the start of the year.

Financial markets continue to believe there is more chance of a rate cut in the next three months, than a rate hike. The one-month overnight indexed swap rate stands at 4.72% with the three-month rate at just under 4.75%.

For most of the period from the mid 1980s to 2002, freight costs went sideways. In fact, the Baltic Dry index broadly held between 1,000-1,500 points. Then came the ascent of China and the index soared to almost 11,800. More ships were needed, and more ships were supplied. The end result? Freight costs have slumped with the Baltic Dry index now at a 2-year low of 1,234. This is good news, especially with steel production at record highs.

Craig James is chief economist at CommSec.

Bill Introduced in New Jersey Would Amend Consumer Fraud Act

The current incarnation of New Jersey’s Consumer Fraud Act leaves commercial enterprises, from carpet installers to home improvement contractors, at the mercy of the courts. With remedies including refunds, treble damages, voiding of contracts, and mandatory attorneys fees, the Consumer Fraud Act (CFA) is, perhaps, among the strongest in the United States.

The CFA permits anyone who suffers an “ascertainable loss” resulting from the violation of the act to seek redress in court. Generally, if the Plaintiff’s claims survive summary judgment or if the claims make it to trial, the plaintiff is entitled to attorneys fees, treble damages, and other damages depending on the type of case brought. According to Cox v. Sears Roebuck & Co, 138 N.J. 2 (1994) and Weinberg v. Sprint Corp., 173 N.J. 233 (2002), the awarding of attorneys fees is not even necessarily contingent on the Plaintiff winning the case. (See also Pron v. Carlton Pools, Inc., 373 N.J. Super. 103, 113 (App. Div. 2004).

Due to perceived inequities, though, a bill has been introduced in the New Jersey legislature that would curtail the severity of the statute. Introduced in the Assembly as A-3333, the proposed bill would modify many of the damages that consumers have used as weapons in garnering early settlements, but which companies contend result in windfalls for minor, often unintended, infractions.

Among the changes would be who can bring claims, what claims can be brought, the scope of the claims brought, and the level of proof required to succeed on consumer fraud claims. The damages arising out of a consumer fraud claim would also be affected by the amendment: attorneys fees would be capped and the feared treble damages would no longer be mandatory.

Some of the larger changes contained in the proposed amendment are as follows:
1) The CFA would be clarified to indicate that only individuals are allowed to sue on a CFA claim;
2) The Act would include language that states that Plaintiffs must prove they “relied to his detriment” on a defendant’s unlawful practice or act;
3) Fee cap would be instituted, limiting them to obtaining fees only in the event of that consumer obtains a judgment, and then limiting the fees to the greater of one-third of the judgment or $150,000;
4) The language relating to treble damages would be changed from “shall … award threefold the damages” to “may … award up to threefold the actual damages”;
5) Suit can only be instituted if the transaction took place in New Jersey.

The bill was introduced in the Assembly on Oct. 12 and sent to the Consumer Affairs Committee. The bill has not been introduced in the Sensate. The sponsors of the bill in the Assembly are John McKeon, D-Essex and Amy Handlin, R-Monmouth.

For more information on the proposed revisions to the New Jersey Consumer Fraud Act, including the full text of the proposed amendment, visit Tesser & Cohen’s Website or call us at 201-343-1100. Tesser & Cohen is a law firm providing service in New Jersey, New York and Pennsylvania.

New Jersey Revises Construction Lien Law

Powerpoint Summary of New Jersey Lien Law Revisions

On January 5, 2011, Governor Chris Christie of New Jersey signed into law revisions to the Construction Lien Law Statute.  The changes affect only commercial and private projects, and have no bearing on the Municipal Mechanics Lien Law, which relates only to government projects.

The bill revises the “Construction Lien Law,” P.L.1993, c.318 (2A:44A-1 et al.), which provides a statutory scheme for private contractors, subcontractors and suppliers to secure payment for their labor and materials, while not impeding the free transfer of real property, through a lien filing process. The bill embodies the text of the New Jersey Law Revision Commission’s Final Report on the Construction Lien Law.

 This bill revises the “Construction Lien Law,” which was enacted in 1993, by:

(1) clarifying and adding certain defined terms, to conform to actual construction industry usage;

(2) clarifying procedures for the filing and amending of the lien claim and for the calculation, distribution and enforcement of the lien fund;

(3) providing more specific provisions for discharging a satisfied lien claim;

(4) further defining the arbitrator’s role;

(5) modifying time limits for filing and perfecting residential construction contract lien claims;

(6) specifying the application of lien claims to community association property; and

(7) addressing certain ambiguities as to mortgage priorities with respect to lien claims.

 The bill is intended to enhance application of the 1993 act and make clearer the procedures to be followed in order to process and perfect a construction lien claim.

 Among the more significant changes to the bill was an inclusion that requires county clerks to, upon request at the time of lodging for record, provide a copy of the lien claim form marked with the date and time received.  A construction lien that is lodged for record means “a document that is delivered to the county clerk and marked by the clerk with a date and time stamp or other mark indicating the date and time received.  A lien claim that is “lodged for record” is enforceable against anyone once notice of the lodging is provided, but does not affect the rights of parties who have not received notice until the construction lien is actually filed by the clerk.  This section of the revised lien law was added to alleviate problems caused by the filing backlog experienced in several counties.

 The bill also clarifies that an action to have a construction lien claim discharged may be filed in a summary manner by filing an order to show cause in accordance with the Rules of Court adopted by the Supreme Court of New Jersey.

 The bill was pre-filed for introduction in the 2010-2011 session pending technical review.  The revisions to the Construction Lien Law were passed unanimously by the New Jersey Assembly on June 21, 2010 and by the New Jersey Senate on November 22, 2010.

 For more information on the revised New Jersey Construction Lien Law, click here to visit Tesser & Cohen’s Website.  Tesser & Cohen is a law firm specializing in construction and serves New York, New Jersey and Pennsylvania.  To download the full text of the law, go to http://www.njleg.state.nj.us/2010/Bills/A0500/410_R1.PDF