May's data lifted the Dodge Index (1996=100) to 167, up from the revised 166 for April. During the first two months of 2004, the Dodge Index had averaged 160, down from the 165 mean for the second half of 2003. The subsequent three months have seen the Dodge Index move back slightly above the 165 mark. "The construction industry has picked up the pace in recent months," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "Single family housing continues to be very strong, and now nonresidential building is beginning to see more sustained improvement, marking a change from its weakening trend over the past three years. The stronger economy is helping the nonresidential structure types, but at the same time there's concern that rising prices for building materials - steel, lumber, and now cement - will dampen the emerging nonresidential expansion."
Nonresidential building in May jumped 11% to $164.7 billion. Much of the upward push came from the institutional structure types, which had generally lost momentum over the previous two years. School construction edged up 3%, while healthcare facilities and public buildings (courthouses and detention facilities) reported gains of 15%. Transportation terminal work increased 19%, boosted by the start of a $181 million terminal renovation at Dulles International Airport in the Washington DC area. The amusement and recreational category jumped 101%, aided by the start of a $145 million convention center addition and renovation project in Cincinnati. Murray stated, "The institutional sector has been dampened by the diminished fiscal health of state and local governments, and now fiscal conditions are beginning to improve in some, although not all, states. The institutional structure types will probably settle back over the next couple of months, but May's upturn does suggest that this sector is beginning to stabilize after the declining trend for construction starts during 2002 and 2003."
The commercial side of the nonresidential market in May included reduced activity for stores (down 2%), warehouses (down 6%), and hotels (down 12%). Office construction posted a slight 1% gain, providing growing evidence that this structure type is at least leveling off during 2004, following its steep downturn witnessed during the previous three years. Construction of manufacturing-related buildings, while still at a low volume, jumped 27% in May, aided by the start of an $85 million biotech laboratory in Indiana and a $79 million industrial park in Illinois.
Residential building, at $312.7 billion, settled back 1% in May. Single family housing was down 4% in dollar volume, although the amount was still very high by recent standards - 10% above the average pace in 2003. Mortgage rates moved upward in May, with the 30-year fixed rate reaching 6.3% (up from 5.4% in March), but the continued strength of new home sales indicates that homebuyer demand has yet to see any negative impact. Multifamily housing in May grew 14%, aided by large projects in Chicago ($80 million), Clayton MO ($66 million), and New York City ($65 million). Murray indicated, "The shift towards condominium projects, plus the continued focus on downtown redevelopment work, is helping to keep multifamily construction at a healthy volume in 2004." By geography, residential building in May performed as follows - the South Atlantic, up 1%; the South Central, down 2%; and the Northeast, Midwest, and West, each down 3%.
Nonbuilding construction in May dropped 9% to $78.6 billion. Much of the nonbuilding retreat was the result of an 88% plunge for electric utilities, following the strong amount of new power plant starts reported during March and April. On a month-by-month basis, the electric utility category is subject to considerable volatility, and May's decline returns contracting to the broader downward trend that has been present over the past two years. The public works categories in May registered a mixed pattern - on the plus side, highways and bridges increased 12% after a weak April, and water supply systems were up 4%. On the negative side, sewers and river/harbor development work showed respective declines of 5% and 9%. While May's level for highways and bridges was the strongest so far in 2004, it was still 12% below the average pace for these project types during 2003.
During the first five months of 2004, total construction on an unadjusted basis was up 10% relative to the same period in 2003. Residential building led the way with a 21% gain, continuing to benefit from the comparison to its more subdued performance in the early months of last year. Nonresidential building in the January-May period was down 2% from a year ago, while nonbuilding construction was down 5%. On a regional basis, total construction in the first five months of 2004 performed as follows - the South Atlantic, up 20%; the Midwest, up 8%; the West, up 7%; the South Central, up 5%; and the Northeast, up 3%.
Source: McGraw Hill Construction, Dodge Index, June 30, 2004