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Construction Contracting Advances Three Percent in April 06.11.2002

June 11, 2002
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Nonresidential building, residential building and nonbuilding construction all showed growth.

New construction starts in April rose three (3) percent to a seasonally adjusted annual rate of $484.5 billion, according to the Dodge Division of McGraw-Hill Construction. Compared to the previous month, moderate improvement was registered by each of the industry's three main sectors--nonresidential building, residential building and nonbuilding construction (public works and electric utilities).

April's data lifted the Dodge index to 146 (1996=100), following the 141 reported for March. During the first two months of 2002, the Dodge Index averaged 156, boosted in particular by a brisk pace for single family housing. March showed single family housing settling back to a more sustainable pace, but it also featured a retreat for public works as well as further weakening for commercial building. "The partial rebound in April suggests that construction activity in 2002 is stabilizing close to the level of the prior year, when the Dodge Index averaged 149," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "It's true that new construction starts are no longer seeing the four percent to five percent rate of growth that occurred during 2000 and 2001, but contracting in a broad sense is avoiding a protracted decline. Continued strength for single family housing in 2002, with added support from institutional building and public works, is helping to offset a diminished volume of commercial building."

Nonresidential building in April was reported at $152.1 billion, up three percent (3%). School construction continued its robust performance, rising 18 percent. Other institutional categories showing April gains were religious buildings (up 10 percent) and healthcare facilities (up two percent), while declines were reported for amusement-related projects (down 15 percent), courthouses and detention facilities (down 20 percent), and transportation terminals (down 57 percent).

The commercial side of the nonresidential market witnessed a mixed pattern in April. Growth was reported for stores (up 9%) and offices (up 5%), but warehouses and hotels were down 11% and 7%, respectively. After an extremely weak March, manufacturing plant construction rebounded 48% in April; however, the level of contracting for this category was still 30% below its depressed pace for all of 2001.

Residential building, at $232.0 billion, increased 2% in April. Single family housing rose a slight 1% in dollar volume, while multifamily housing posted a 5% gain. Single family housing is down 8% from its exceptional pace during the first two months of 2002, but it remains in healthy condition--April's rate of contracting was still 7% above the average in 2001. The low cost of financing, with the 30-year fixed mortgage hovering just below the 7% mark, continues to support both homebuyer demand and single family construction. Residential building has also been helped in recent months by stability for multifamily housing, which has avoided the sharp declines experienced by commercial building. By region, residential building in April showed this pattern--the Midwest, up 12%; the South Central, up 7%; the Northeast, up 6%; the South Atlantic, down 3%; and the West, down 5%.

Nonbuilding construction in April grew 7% to $100.3 billion. Most of the upward momentum came from a 218% jump for electric utility construction, following a subdued March. April included the start of three large power plants in Pennsylvania ($350 million), New York ($300 million), and Nevada (4270 million). For the public works categories, April showed gains for highways and bridges (up 1%) and water supply systems (up 10%). Reduced contracting was reported for sewers (down 12%), and river/harbor development (down 50% from a very strong March).

During the January-April period of 2002, total construction on an unadjusted basis was up 1% compared to the previous year. By major sector, greater contracting was reported for residential building, up 11%; and nonbuilding construction, up 4%; but nonresidential building trailed 2001 by 13%. On a geographical basis, total construction in this year's first four months was the following--the Northeast, up 11%; the South Atlantic, up 8%; the Midwest, up 5%; the West, down 6%; and the South Central, down 9%.

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