July's data lifted the Dodge Index to 179 (1996=100), up from the 170 reported for June. The current year has seen an upward trend through July, with the Dodge Index averaging 170. This compares to an average of 155 for the first seven months of 2003, and an average of 159 for the full year 2003. "The construction industry continues to be one of the stronger segments of the economy, amidst concerns that the late spring 'soft patch' may be leading to more extended deceleration," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "Right now, commercial building has picked up the pace, and even institutional building and public works are seeing modest improvement after their weak performance earlier in 2004. At the same time, the expected slowdown for single family housing has yet to materialize. As 2004 proceeds, it's anticipated that the robust year-to-date growth for residential building and total construction will settle back to some extent, since the comparison will then be versus the elevated volume for single family housing reported in the latter half of 2003. Still, 2004 is shaping up as another year of healthy expansion for total construction, which remains on track to top the 5% increase registered during 2003."
Nonresidential building in July advanced 9% to $171.8 billion (annual rate). A major part of the nonresidential gain was related to the groundbreaking for the Freedom Tower in lower Manhattan, with the portion entered as a July construction start estimated at $800 million. If this large project is excluded from the July construction statistics, nonresidential building was still up 3% for the month. With the boost coming from the Freedom Tower, new office construction starts in July surged 40%; excluding the Freedom Tower, office construction in July retreated 12% from June. The other commercial structure types posted these July gains - hotels, up 7%; stores and shopping centers, up 12%; and warehouses, up 21%. Murray stated, "Stores and hotels over the past year have been the leading edge for the emerging upturn by commercial building, and now growth is becoming discernible for offices and warehouses, albeit tentatively and from low levels." The July nonresidential statistics also included a strong increase for manufacturing-related buildings, up 148% with a large boost provided by the start of a $363 million refinery in Minnesota.
The institutional side of the nonresidential market in July showed a mixed pattern by structure type. Increases were reported for public buildings (courthouses and detention facilities), up 10% with the help of a $144 million courthouse project in Worcester MA; and the amusement and recreational category, up 14%. Declines were reported for school construction, down 3%; churches, also down 3%; healthcare facilities, down 22%; and transportation terminals, down 27%. During the first seven months of 2004, school construction was down 5% from 2003, as the mild retrenchment from the 2001 all-time high for this structure type continues.
Residential building, at $320.5 billion (annual rate), advanced 4% in July. Both single and multifamily housing showed gains for the month, up 2% and 12% respectively. Low mortgage rates continue to support homebuyer demand - the 30-year fixed rate averaged 6.0% in July, down from 6.3% in May and June, and by mid-August the 30-year fixed rate had receded to 5.8%. Murray stated, "Mortgage rates are expected to edge upward towards the end of the year, assuming that the economy regains some of its earlier momentum. The higher cost of financing, along with rising prices for building materials, will eventually dampen single family housing. Yet, even with a moderate decline, single family construction would still be at a high volume by the standards of the past decade." On a regional basis, residential building in July showed this pattern compared to June - the Northeast, up 8%; the West, up 5%; the South Atlantic, up 3%; and the Midwest and South Central, each up 1%.
Nonbuilding construction in July increased 6% to $102.8 billion (annual rate). Water supply construction surged 69%, aided by the start of two large water treatment facilities located in California ($292 million) and Arizona ($210 million). Highways and bridges climbed 9% in July, while more modest growth was reported for river/harbor development, up 4%; and sewers, up 2%. The water supply and sewer categories in 2004 are generally seeing a partial rebound in construction starts, following the reduced activity witnessed in 2003. At the same time, highways and bridges remain below their 2003 pace, even with the July increase. Murray stated, "Highway and bridge construction starts are still restrained by tight budget conditions, the uncertainty related to the pending enactment of the federal transportation bill, and the dislocations caused by higher steel prices." The electric utility category in July showed a 51% decline, as its downward trend continues.
The 10% increase registered by total construction during the January-July period of 2004, relative to 2003, was due to this behavior by sector - residential building, up 19%; nonresidential building, up 1%; and nonbuilding construction, down 1%. By geography, total construction in the first seven months of 2004 showed this pattern - the South Atlantic, up 16%; the West, up 12%; the Northeast, up 8%; the South Central, up 7%; and the Midwest, up 4%.
Source: McGraw-Hill Construction, Aug. 25, 2004