The latest month's data kept the Dodge Index at 145 (1996 = 100), unchanged from April, and equal to the levels reported for February and March. The Dodge Index began 2003 at 151, prior to settling back to 145 over the next four months. "The construction industry has lost some momentum during 2003, but so far it's been a controlled descent," stated Robert A. Murray, vice president of economic affair for McGraw-Hill Construction Dodge. "Housing continues to move at a healthy clip, and while commercial building is still weakening, its rate of decline is not as severe as a year ago. At the same time, tighter fiscal conditions have dampened both institutional building and public works, marking a change from their performance during 2001 and 2002."
Residential building in May increased 2% to $254.7 billion. A 24% jump for multifamily housing led to the overall residential gain, since single family housing in May was down a slight 1%. Murray noted, "Multifamily housing is being supported by downtown redevelopment efforts in many cities, plus the fact that apartments still represent a safe investment compared to other income property types." In May, large apartment projects were started in Miami Beach, Ft. Lauderdale, and Atlanta. Although single family housing in May did not register further growth, its level remained quite high, 2% above the average pace for all of 2002. Low mortgage rates continue to boost homebuyer demand - the 30-year fixed mortgage rate settled back from 5.7% at the start of May to 5.3% by month's end, with an additional drop to 5.2% taking place during June. On a regional basis, residential building in May showed this pattern - the South Atlantic and Northeast, each up 5%; the Midwest, up 3%; the West, unchanged; and the South Central, down 1%.
Nonresidential building, at $144.4 billion, fell 3% in May. After April's improved contracting, several commercial categories once again experienced weakness - warehouses, down 5%; offices, down 11%; and hotels, down 40%. Store construction ran counter to this declining trend, rising 23% with the help of an $80 million project in Atlantic City and a $60 million project in Chicago. Murray indicated, "Store construction continues to move at a good pace, driven by the needs of retailers and developers to stand out in the competitive retail landscape, plus the greater demand for retail space arising from the surge of residential development." The manufacturing plant category in May advanced 18% versus a weak April, yet the level of contracting continues to be depressed.
The institutional side of the nonresidential market was generally weaker in May. School construction slipped 2%, while more substantial declines were reported for public buildings (courthouses and detention facilities), down 25%; healthcare facilities, down 27%; and transportation terminals, down 45%. The diminished fiscal health of states and municipalities is beginning to have a more discernible negative impact on the institutional structure types. On the plus side, two institutional categories were able to show growth in May -- churches, up 2%; and amusement-related projects, up 33%. In the latter case, much of the gain came from the start of a $100 million university recreational facility in Ohio.
Nonbuilding construction in May dropped 2% to $82.0 billion. New electric power plant starts plunged a substantial 40%, resuming the broad downward trend for this category after April's brief upturn. The public works categories in May showed a more mixed pattern. Gains were reported for water supply systems, up 2%; highways, up 5%; sewers, up 11%; and river/harbor development, up 19%. Posting declines were mass transit work, down 5%; and bridges, down 9%. During the coming months, Congress will continue its debate over the next multiyear surface transportation legislation, which at this point appears likely to contain greater funding for transportation projects, even with the mounting federal budget deficit.
For the first five months of 2003, the 5% decline for total construction compared to 2002 was due to this behavior by major sector - residential building, up 5%; nonresidential building, down 10%; and nonbuilding construction, down 20%. On a regional basis, total construction during the January-May period of 2003 was the following - the West, up 7%; the South Central, up 2%; the South Atlantic, down 3%; the Midwest, down 10%; and the Northeast, down 26%.