Table 2. Overall correlation based upon monthly year-over-year growth rates from January 2002 to October 2011
Table 1. 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, misc. overhead and interest/taxes.
Wright Express Corporation (NYSE: WXS), a leading global provider of value-based business payment processing and information management solutions, in collaboration with IHS (NYSE: IHS), a leading provider of global economic and financial intelligence, has released results of its Wright Express Construction Fuel Consumption Index (FCI), which indicated an increase of 0.9% on an annual basis in October.
The Wright Express Construction FCI measures national fuel consumption statistics for the construction industry, which provides an accurate and up-to-date indication of construction activity in the United States. The construction segment comprises approximately 20% of the Wright Express portfolio of customers.
Wright Express worked with IHS Consulting and Advisory Services to capture and analyze transaction data from its closed loop network of more than 180,000 fuel and vehicle maintenance locations, including over 90% of the domestic retail fuel locations and 45,000 vehicle maintenance locations. With this data, the Wright Express Construction FCI can be used to identify emerging trends within the construction industry and the national economy.
"The analysis of the October 2011 data suggests the construction industry is slowly inching forward on an annual basis," said Michael Dubyak, Wright Express Chairman and Chief Executive Officer. "The report also shows, in looking back to September, an increase in private construction by 0.6%, and a possibility that rebuilding after Hurricane Irene is what gave construction employment a temporary boost in September.”
The indicators were tested at monthly, quarterly, and annual frequencies, with the greatest insights produced using the year-over-year percent change of the monthly data. For October 2011, the Wright Express Construction FCI reported that fuel consumption by U.S. construction companies rose by 0.9% versus October 2010, and declined by 1.8% versus the previous month.
The Wright Express Construction FCI, which is available monthly in advance of the U.S. Census Bureau of the Department of Commerce figures on construction spending, is available at www.wrightexpress.com/fci.
October 2011 Wright Express Construction Fuel Consumption Index (FCI)
According to the Wright Express Construction FCI, the construction industry is in neutral, which will take some time to recover. Despite experiencing a month-to-month decline, the index (Table 1) increased 0.9% on an annual basis in October, and consistent annual growth provides a glimmer of hope.
According to IHS’s analysis, the October result reflects the state of the stalled construction industry. Throughout 2011, small monthly gains have been offset by subsequent losses, while the construction industry slowly inches forward on an annual basis. After two consecutive month-to-month declines in the seasonally adjusted index, it is evident that growth in the construction industry is not yet ready to take off. Construction spending is expected to pick up somewhat in 2012, with more substantial gains coming in 2013 when housing returns. Pent-up demand for housing is building as young adults stay at home, and at some point will spark a major revival in housing activity.
The Wright Express Construction Fuel Consumption Index was developed by IHS Global Insight with support from Wright Express. The index is based on monthly fuel consumption statistics for the construction industry tracked by Wright Express's comprehensive fuel consumption database. It 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 Wright Express's fuel transaction database was "cleaned" based on a criteria developed by IHS Global Insight with input from Wright Express. 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 16 different construction and housing indicators and the construction sector fuel consumption data provided by Wright Express. Correlation tests were conducted on each of the indicators against the volume of gallons consumed, the volume of gallons consumed per effective fueling day, 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 with the greatest insights 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 Wright Express fuel consumption data. Through this analysis, it was revealed that the Wright Express Construction FCI for construction was a particularly strong indicator of the value of total construction put-in-place and construction industry employment in the United States. The overall correlation based upon monthly year-over-year growth rates from January 2002 to October 2011 was 0.897 for the number of new single-family homes for sales and 0.896 for total construction put-in-place (Table 2).
About Wright Express
Wright Express Corporation (NYSE: WXS) is a leading provider of value-based, business payment processing and information management solutions. The Company's subsidiaries include Wright Express Financial Services, Pacific Pride and Wright Express International, including Wright Express Prepaid Cards Australia and Wright Express Fuel Cards Australia. Wright Express and its subsidiaries employ more than 850 associates in six countries. For more information about Wright Express, please visit wrightexpress.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. 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 more than 5,100 people in more than 30 countries around the world.