February's data lifted the Dodge Index to 161 (1996=100), up from a revised 155 for January. After reaching its most recent peak in October 2003 at 168, the Dodge Index had experienced a mild loss of momentum over the next three months, before rebounding in February. "The construction industry appears to be hovering at a level close to last year's pace," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "Housing remains very healthy, and the upturn for nonresidential building in February was a welcome development after a sluggish January. Over the course of 2004, it's expected that nonresidential building will see a modest strengthening trend. Admittedly, though, this year's sharp increase in steel prices has made the nonresidential upturn less certain, given the impact that higher costs and materials shortages may have on individual construction projects. At this juncture, it appears that the nonresidential upturn will be dampened but not derailed, assuming steel prices settle back by midyear, but the situation clearly bears watching."
Nonresidential building in February increased 7% to $148.3 billion. Office construction jumped 39% following a weak January, boosted by the start of two U.S. Department of Transportation office buildings in Washington DC totaling $189 million, plus two office buildings in Atlanta valued respectively at $89 million and $80 million. Murray indicated, "While still at a low volume, office construction is now seeing the occasional monthly gain, which in the case of February included the start of several large government-related office projects." Stores and shopping centers in February increased 21%, reflecting the start of an $88 million project in Logan Township PA and a $50 million project in Las Vegas. The educational building category also had a strong month, rising 18% with the start of a $100 million university building in Chicago and a $55 million museum renovation in New York City.
Nonresidential structure types that weakened in February included: hotels, down 36% (compared to a robust January buoyed by the addition to a major Las Vegas hotel/casino); manufacturing plants, down 24%; and warehouses, down 11%. The institutional categories, other than educational buildings, also registered generally weaker activity in February.
Declines were posted by public buildings (courthouses and detention facilities), down 33%; transportation terminals, down 20%; healthcare facilities, down 10%; churches, down 8%; and. amusement-related projects, down 3%.
Residential buillding, at $308.9 billion, increased 4% in February. Single family housing edged up 2%, continuing to show a very healthy volume as homebuyer demand has been helped even further by the low cost of financing. After ending 2003 at 5.8%, the 30-year fixed mortgage has trended downward, averaging 5.6% in February, with an additional decline to 5.4% taking place during March. Multifamily housing in February surged 21%, posting its second strong gain in a row after the loss of momentum witnessed at the end of 2003. Although market fundamentals (occupancies and rents) have weakened for apartments in a number of metropolitan areas, development of condominiums has stayed at a brisk pace. Major multifamily construction starts in February included a $90 million project in Boston, a $54 million project in Ft. Worth TX, and ten projects in Florida valued each in the range of $25 million to $55 million. By geography, residential building showed this pattern in February compared to the previous month: the South Atlantic, up 8%; the South Central, up 4%; the West, up 3%; the Northeast, up 2%; and the Midwest, unchanged.
Nonbuilding construction in February was reported at $78.3 billion, essentially the same as the previous month. The public works categories in total bounced back 4% after a weak January, but they were offset by a sharp 61% decline for electric power plants. Highways and bridges in February were up 16%, helped by the start of several large bridge projects in such states as Virginia, North Carolina, Pennsylvania, Tennessee, and Iowa. For environmental public works, gains were reported for sewers (up 19%) and water supply systems (up 4%), while river/harbor development retreated (down 5%). Murray noted, "After an unusually weak January, it was expected that public works construction would rebound in February. At the same time, the tough fiscal climate for the federal and state governments means that it will be difficult for public works to see growth for 2004 as a whole."
On an unadjusted basis, the 2% gain for total construction in 2004's January-February period was due to this pattern by sector, relative to last year - residential building, up 13%; nonresidential building, down 7%; and nonbuilding construction, down 13%. By geography, total construction performed as follows in 2004's first two months - the South Atlantic, up 11%; the South Central, up 1%; the Midwest and West, each unchanged; and the Northeast, down 8%.
Source: McGraw-Hill Construction, March 30, 2004