September's data lowered the Dodge Index to 170 (1996=100), compared to a revised 175 for August. After the heightened readings during the May-July period, when the Dodge Index averaged 179, contracting has returned to levels closer to the 172 average for the first nine months of the year. "While August and September have seen a slower pace, new construction starts are still on track to post the strongest annual gain in five years," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "Single family housing continues to be the main source of expansion for the construction industry, and this year an improving trend for commercial building has taken hold. In addition, there have been a few unexpected gains in 2004, reported by several institutional structure types and environmental public works."
Residential building in September was $325.0 billion (annual rate), essentially unchanged from August. Single family housing was down 3%, while multifamily housing jumped 14%. The September level for single family construction was still robust, up 14% in dollar terms compared to the full year 2003 average. And, single family housing during the first nine months of 2004 showed a dollar volume gain of 19% relative to last year. The cost of financing has stayed supportive - the 30 year fixed mortgage rate averaged 5.8% in September, down slightly from 5.9% in August, as long-term interest rates have not yet seen the upward movement experienced by short term rates. Murray noted, "Single family housing in 2004 will show growth for the fourth straight year, but this torrid structure type is expected to finally cool down a bit in 2005, as mortgage rates edge upward and homebuyer demand recedes in some of the overpriced markets on the coasts." The September multifamily total was aided by the start of several large projects, located in Honolulu HI ($93 million), Wanaque NJ ($92 million), Las Vegas NV ($90 million), Hallandale FL ($75 million), and Washington DC ($75 million). In 2004, a growing volume of condominium projects have helped to boost multifamily construction, which through the first nine months was up 13% in dollar terms compared to last year.
Nonresidential building, at $148.5 billion (annual rate), was down 4% in September. Healthcare facilities fell 26%, while office construction retreated 21% from an August that included the start of the $400 million New York Times headquarters in midtown Manhattan. School construction in September dropped 12%, as tight fiscal conditions for states and localities continue to outweigh the greater demand for classroom space from rising enrollments. Hotel construction was down 1%, although September did include the start of a $90 million convention center-related hotel project in Schaumburg IL. On the plus side, manufacturing buildings surged 89% in September, boosted by the $300 billion expansion of a biotech facility in California and the start of a $200 million truck manufacturing plant in Texas. Stores and warehouses in September registered respective gains of 5% and 18%. Growth was also shown by the smaller institutional structure types, including churches, up 3%; amusement-related projects, up 4%; public buildings (courthouses and detention facilities), up 10%; and transportation terminals, up 21%. Murray stated, "While nonresidential building was down slightly in September, due to a mixed performance by structure type, the current year has seen this sector begin to turn upward. This is the result of emerging improvement for the commercial structure types and manufacturing plant construction, plus the initial signs of renewed strengthening for several institutional categories."
Nonbuilding construction in September fell 8% to $91.0 billion (annual rate). New construction starts for highways and bridges were down 23% from August, continuing this year's lackluster performance for these project types. Through the first nine months of 2004, highway and bridge construction starts were down 5% compared to last year. Murray stated, "Several reasons can be cited for this year's slower pace for highways and bridges - the delay in getting the multiyear federal transportation bill passed, tight fiscal conditions for state governments, and the dislocations caused by higher steel prices." September also showed reduced contracting for water supply systems, down 4%; and sewers, down 2%. Two public works categories registered gains in September - river/harbor development, up 6%; and mass transit and site development, up 23%. In the latter case, the boost was provided by the start of a $400 million light rail transit project in Los Angeles CA. September included a 74% gain for electric utility construction from an extremely weak August. Even with this gain, the general trend for electric utilities remains downward.
The 10% increase for total construction in the first nine months of 2004 was the result of the following performance by sector - residential building, up 18%; nonresidential building, up 3%; and nonbuilding construction, unchanged. By geography, total construction in the January-September period reflected this pattern - the South Atlantic, up 14%; the West, up 13%; the South Central, up 9%; the Northeast, up 9%; and the Midwest, up 5%.
Source: McGraw-Hill Construction Analytics, Oct. 29, 2004