The June statistics raised the Dodge Index (1996=100) to 170, up from a revised 168 for May. The current year began on a sluggish note, as the Dodge Index slipped back to 160 following its average of 169 during the final three months of 2003. Since January, new construction starts have seen gradual improvement, regaining the elevated level that was achieved at the end of last year. "June was helped by a stronger volume of public works construction, which so far in 2004 has been one of the weaker construction sectors," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "While June's upturn for public works was a welcome development, this sector going forward will still be limited by tight fiscal conditions for the federal and state governments. During the first half of 2004, the construction industry continued to be supported by the robust performance of single family housing, in combination with stability for commercial building. It's expected that the second half of 2004 will see single family housing ease back a bit, and commercial building remains the sector most likely to pick up the slack."
Nonbuilding construction in June jumped 22% to $96.1 billion. Gains were reported for most of the public works categories, including: highways, up 9%; bridges, up 13%; river/harbor development, up 18%; and sewers, up 47%. The sewer total was boosted by the start of three large projects, located in Georgia ($190 million), Virginia ($87 million), and Pennsylvania ($65 million). Water supply systems in June retreated 10%, settling back from the enhanced contracting that was reported in April and May. The June nonbuilding total was also boosted by electric utilities, which increased 209% from an extremely weak May. Despite the large percentage gain, June's level for electric utility construction was still about one-half the average monthly pace during 2003.
During the first six months of 2004, nonbuilding construction was 4% below the corresponding 2003 period. The most pronounced weakness was registered by highways, down 11%; and bridges, down 29% from a first half of 2003 that included a number of large bridge projects. This year's volume of highway and bridge construction has faced several constraints, including tight fiscal conditions for the states and the dislocations caused by this year's steep rise in steel prices. In addition, the last multiyear federal transportation bill expired on September 30, 2003, and Murray noted, "The lack of a replacement bill this year has produced an uncertain funding horizon for state departments of transportation, hampering their ability to approve major new projects." For the environmental categories, river/harbor development work was down 10% in the first half of 2004, while sewers and water supply systems bounced back from a weak 2003 with respective gains of 5% and 17%. Electric utility construction dropped 8% in the first half of 2004, continuing the downward trend in progress for the past two years.
Nonresidential building, at $160.1 billion, retreated 2% in June. The institutional sector was generally weaker in June, including declines for transportation terminals, down 5%; healthcare facilities and churches, each down 9%; and amusement-related projects, down 52% from a very strong May. The institutional slide was cushioned by June gains for schools, up 7%; and public buildings (courthouses and detention facilities), up 22%. The commercial/industrial categories showed a mixed performance in June, with weaker contracting for stores, down 7%; manufacturing buildings, down 12%; and warehouses, down 13%. On the plus side, June included an 18% increase for offices, boosted by the start of a $120 million expansion to an office complex in Seattle WA and an $80 million government office building in suburban Maryland. Hotel construction in June soared 144%, aided by the start of a $90 million convention-center related hotel in Boston MA and a $90 million hotel in Niagara Falls NY.
For the first half of 2004, nonresidential building was 1% lower than its year ago amount. School construction, the largest nonresidential category by dollar volume, was down 4% as it continues to settle back from its peak in 2001. The other institutional categories were able to post first half 2004 gains, including churches, up 1%; transportation terminals, up 6%; public buildings, up 7%; healthcare facilities, up 8%; and amusement-related projects, up 16% (reflecting a pickup in convention center starts). Manufacturing buildings were down 24% from the first half of 2003. The commercial categories included a 5% reduction for offices, less severe that the full year declines of 8% in 2003 and 24% in 2002. Murray stated, "Office construction appears to be stabilizing in 2004, following its retrenchment over the 2001-2003 period. Office projects expected to reach groundbreaking in the coming months should help the full year 2004 total for new office starts to be at least even with 2003, with some possibility for a modest gain." Stores and warehouses in the first half of 2004 were essentially steady with 2003, registering slight declines of 1% and 2%, respectively. Hotel construction in the first half of 2004 was up 8%, continuing the expansion for this structure type that took hold during 2003.
Residential building in June slipped 2% to $308.9 billion. Single family housing held steady, while multifamily housing retreated 12% from a very strong May. The 30-year fixed mortgage rate averaged 6.3% in May and June, up from 5.8% in April, but single family housing has yet to show much negative impact. The 30-year fixed mortgage rate has since settled back to 6.0% during July.
For this year's January-June period, residential building was up 20% compared to its lackluster performance during the first half of 2003. Since the housing market strengthened considerably during the final months of 2003, it's expected that the year-to-date percentage growth will diminish as 2004 proceeds. By structure type, single family housing in 2004's first half was up 21%, while multifamily housing grew 14%. Murray stated, "The volume of single family housing has been exceptional, but maybe even more surprising has been the resilient performance by multifamily housing, despite rising vacancy rates in some markets. Multifamily housing has been helped by its growing share of condominium projects, the continued push for downtown redevelopment, and the fact that multifamily housing is still viewed as a relatively safe investment target." By region, residential building showed these first half gains compared to last year - the South Atlantic, up 24%; the South Central, up 22%; the Northeast, up 21%; the West, up 20%; and the Midwest, up 13%.
For total construction, the 10% increase reported for the U.S. in the first half of 2004 compared to last year was due to this breakdown by geography - the South Atlantic, up 18%; the West, up 10%; the South Central, up 7%; and the Midwest and Northeast, each up 5%.
Source: McGraw-Hill Construction, July 28, 2004