Point of Beginning

May Construction Climbs Four Percent 07.02.2002

July 2, 2002
During the first five months of 2002, total construction maintained a one percent (1%) lead over the same period in 2001.

New construction starts increased four percent in May to a seasonally adjusted annual rate of $496.6 billion, according to the Dodge Division of McGraw-Hill Construction. Greater activity was reported across a wide range of project types, resulting in moderate growth for the industry's three main sectors--nonresidential building, residential building and nonbuilding construction (public works and electric utilities).

The latest month's data raised the Dodge Index to 150 (1996=100), compared to a revised 144 for April. The Dodge Index began 2002 at a brisk pace, averaging 158 during the first two months of the year, before dropping to 141 in March.

Nonresidential building in May climbed 6 percent to $156.6 billion, helped by strong gains for several institutional categories. Healthcare facilities jumped 32 percent, as the volume of new hospital construction stayed strong. Amusement-related work advanced 23 percent, boosted by the start of a $131 million convention center in Hartford, Conn., while the public building category rose 55 percent with the start of a $100 million prison in Indiana. Transportation terminal work doubled, aided by the start of $161 million cargo storage facility at New York's JFK International Airport and a $48 million airport terminal expansion in Tucson, Ariz. At the same time, school construction in May settled back 13 percent, following an exceptionally strong amount in April.

Commercial construction registered some improvement in May, with hotels up 5 percent, stores up 8 percent, and warehouses up 16 percent. Despite these gains, hotel and warehouse construction are still substantially weaker than their first half 2001 levels. Office construction in May continued to erode, slipping an additional 1 percent. Manufacturing plant construction also showed further weakening in May, dropping 14 percent.

Residential building, at $238.5 billion, was up 2 percent in May. The modest increase was the result of a one percent gain for single family housing, combined with a 13 percent pickup for the multifamily side of the market. Single family housing is still very healthy--contracting in May was nine percent above the monthly average for 2001. The low cost of financing which supports consumer demand will remain present for at least the near term--the 30 year fixed mortgage rate averaged 6.8 percent in May, and towards the end of June it had edged down to 6.6 percent. By region, residential building in May showed growth in the West, up five percent; the Northeast up four percent; the South Central, up 3 percent; and the South Atlantic, up 2 percent. The one region to see a residential decline in May was the Midwest, down one percent.

Nonbuilding construction in May grew three percent to $101.6 billion. Much of the upward push came from a 19 percent gain for electric utilities, rising for the second straight month after sharply reduced contracting in February and March. May featured the start of large power plant projects in South Carolina ($450 million), two in Indiana ($400 million and $211 million), and Texas ($105 million). The pattern for public works in May was mixed--the largest public works category, highway construction, was up 7 percent; and river/harbor development work advanced 10 percent. On the negative side, May witnessed decreased contracting for bridges (down 2 percent), water supply systems (down 13 percent) and sewers (down 17 percent).

During the first five months of 2002, total construction on an unadjusted basis maintained a one percent lead over the same period of 2001. By sector, residential building was up 10 percent, followed by a one percent gain for nonbuilding construction. In contrast, nonresidential building trailed its 2001 pace by 11 percent. In terms of geography, total construction showed this pattern during the January-May period-- Northeast and Midwest, each up 7 percent; the South Atlantic, up 6 percent; the West, down 4 percent; and the South Central, down 10 percent.