Point of Beginning

March Construction Activity Retreats 11 Percent 05.08.2002

May 8, 2002
Single family housing and public works fell from the strong contracting reported at the beginning of 2002.

The value of new construction starts dropped 11 percent in March to a seasonally adjusted annual rate of $486.9 billion, according to the Dodge division of McGraw-Hill Construction. Both single family housing and public works fell from the very strong contracting reported at the beginning of 2002, while nonresidential building slipped back from more modest improvement.

The latest month's data lowered the Dodge Index to 141 (1996=100), down from a revised 158 for February. "The pace of construction activity in January and February was unusually strong, aided by warm winter weather that helped to push forward the timing of construction starts," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "The March decline in effect compensates for the heightened activity at the start of 2002, so perhaps a better reading of the construction industry cmoes from looking at the average for the years's first three months. Total construction during the first quarter of 2002 proceeded at an annual rate of $501.0 billion, a 2 percent gain over both the previous quarter and the average for all fo 2001. This is consistent with the sense that constuction contracting is now leveling off, compared to last year's 4 percent gain, while still remaining at a reasonably healthy volume. At the same time, there would be mounting concern should the March rate of contracting be repeated in April and May."

Residential building in March fell 11 percent to 222.1 billion, as contracting receded from the very high levels in Jan. and Feb. Single family housing in March was down 12 percent, while multifamily housing dropped 8 percent. The amount of residential construction was still brisk by recent standards, however, with March up 2 percent compared to the average for all of 2001. By geography, residential building in March showed this pattern -- the Midwest, down 21 percent; the Northeast, down 14 percent; the South Central and the West, each down 8 percent; and the South Atlantic, down 7 percent.

Nonbuilding construction, at $96.2 billion, dropped 11 percent in March. Most of the public works categories witnessed reduced contracting compared to February, including: highways, down 10 percent, sewer systems, down 11 percent, water supply systems, down 18 percent, and bridges, down 27 percent. Running counter to this trend was a 42 percent jump for river/harbor development work, boosted by the start of a $169 million flood project in Illinois. Electric power plant construction was also up in March, posting a slight 3 percent gain. Even so, the amount of electric power plant construction remains well below what was reported during most of 2001.

Nonresidential building in March slipped 10 percent to $150.6 billion. The commercial categories featured declines of 23 percent for stores and 20 percent for hotels, while office construction was unchanged from February and warehouses advanced 10 percent. Construction of manufacturing plants plunged a sharp 51 percent after the improved amount in February. Maurray stated, "Despite signs that the nation's industrial sector is beginning to strengthen, the recovery for manufacturing plant construction is not likely to take hold in a sustained manner before next year." The institutional side of the nonresidential market in March was mixed. School construction fell 11 percent, following its very strong contracting during the first two months of the year. Church construction was down 10 percent, while public builidngs retreated 37 percent. On the plus side, both healthcare facilities and amusement-related projects registered 7 percent gains. The transportation terminal category jumped 71 percent, helped by the start of a $283 million reconstruction of the PATH train terminal expansion in Anchorage, Ak.

During the first three months of 2002, total construction on an unadjusted basis was 1 percent below the same period in 2001. Pulling the total construction downward was a 14 percent decline for nonresidential building compared to last year, outweighing gains of 9 percent for residential building and 3 percent for nonbuilding construction. On a regional basis, total construction in the January-March period was the following: South Atlantic, up 12 percent; the Midwest, up 6 percent; the Northeast, up 4 percent; the West, down 9 percent; and the South Central, down 13 percent.