Construction

January Construction Recedes 3 Percent 3.19.04

March 19, 2004
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The value of new construction starts in January settled back 3 percent to a seasonally adjusted annual rate of $522.1 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. Residential building held steady with its elevated pace in December, but declines were reported for nonresidential building and public works.

The latest month's data lowered the Dodge Index to 157 (1996=100), down from an upwardly revised 163 for December. Since reaching its most recent peak at 166 in October, the Dodge Index has retreated for three months in a row, returning to the 157 mark that was the average for all of 2003.

Nonresidential building in January fell 2 percent to $139.1 billion. School construction, the largest nonresidential category by dollar volume, dropped 17 percent. Other institutional categories showing reduced contracting in January included healthcare facilities, down 3 percent, and amusement-related projects, down 9 percent, while church construction was essentially steady. On the commercial side, office building in January slipped 7 percent from its improved December amount, continuing the up-and-down pattern that became apparent during 2003. Store construction in January held steady with its December level.

Several of the smaller nonresidential categories registered gains in January. Hotel construction jumped 78 percent, boosted by the start of a $297 million addition to a major hotel/casino in Las Vegas. Transportation terminal work advanced 70 percent, reflecting the start of two major projects--a $169 million airline terminal renovation in Miami and an $87 million airline terminal expansion in Detroit. Warehouse construction in January increased 11 percent, and the public building category (courthouses and detention facilities) grew 8 percent. Manufacturing plant construction in January was also up 8 percent, helped by the start of two large steel-related plants in Ohio, valued respectively at $63 million and $55 million.

Nonbuilding construction, at $79.9 billion, fell 16 percent in January. Reduced contracting was reported throughout the public works sector, including a 23% drop for new highway starts and a 49% plunge for bridge construction compared to a strong December. The environmental project types included these January declines - river/harbor development, down 12 percent; water supply systems, down 22 percent; and sewers, down 28 percent.

The January nonbuilding decline was cushioned by an 85 percent jump for power plant construction, aided by the start of a $270 million power plant in Wisconsin and a $64 million power plant in Connecticut. January's level of power plant construction was still 45 percent below this category's average pace for 2003.

Residential building in January was reported at $303.1 billion, unchanged from December. Single family housing slipped a modest 3 percent, while multifamily housing surged 28 percent. The cost of financing continues to be very supportive to the housing sector in general--the 30-year fixed mortgage rate averaged 5.7 percent in January, down from 5.9 percent in December, and February has seen an additional drop to 5.6 percent. While single family housing retreated slightly in January, the month's level of activity was still very high by recent standards, coming in 11 percent above the category's average pace for 2003. The substantial January increase for multifamily housing reflected a rebound from a weak December, combined with an added push arising from the start of six very large projects. These projects were located in Honolulu ($100 million), Boston ($93 million and $90 million), New York ($90 million), and Miami ($62 million and $60 million). On a geographic basis, residential building in January showed gains in the Northeast (up 10 percent), the West (up 4 percent), and the South Central (up 2 percent), while declines were registered in the Midwest (down 3 percent) and the South Atlantic (down 7 percent).

On an unadjusted basis, total construction in January 2004 was reported at $36.7 billion, down 2 percent from January 2003. By sector, reduced activity was posted by nonresidential building, down 11 percent, and nonbuilding construction, down 18 percent, while residential building was up 9 percent. The regional pattern for total construction compared to the same month a year ago was the following - the South Atlantic, up 4 percent; the West, up 3 percent; the Midwest, unchanged; the South Central, down 9 percent; and the Northeast, down 19 percent.

Source: McGraw-Hill Construction, Feb. 26, 2004

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