Construction Advances 2 Percent

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Construction Advances 2 Percent
At a seasonally adjusted annual rate of $667.6 billion, new construction starts in August increased 2% compared to the previous month, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. The upward push came from nonresidential building, which continued to strengthen after its weak volume earlier in the year. The construction industry's other two major sectors, residential building and nonbuilding construction, were essentially unchanged in August. During the first eight months of 2005, total construction on an unadjusted basis was reported at $434.4 billion, a 7% gain versus the same period a year ago.
The August statistics lifted the Dodge Index to 201 (1996=100), up from a revised 197 for July. In the second quarter of 2005, the Dodge Index averaged 191, while the first quarter averaged 181. "The early reading for the third quarter showed construction starts still on a rising trend, prior to September and Hurricanes Katrina and Rita," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "In the near term, that rising trend will be dampened by the disruption caused by Katrina and Rita, as the impacted areas in Louisiana, Texas, Mississippi, and Alabama focus on cleanup work. Going into next year, construction activity will get a boost from rebuilding efforts in the Gulf region. However, a major uncertainty for the broader U.S. construction market is what effect the hurricanes will have on the price and availability of building materials. Nonresidential building in recent months had picked up the pace, following its lackluster performance at the outset of 2005 related to the re-evaluation of projects in the face of higher costs. Further increases in the price of materials will make it more difficult for nonresidential building to maintain the improving trend that seemed to be taking hold during the spring and summer."
Nonresidential building in August rose 6% to $181.5 billion (annual rate). Gains were reported for most of the commercial and industrial structure types. The long-depressed manufacturing plant category soared 192%, due in large measure to the start of a $900 million semiconductor fabrication plant in Arizona. If this large project is excluded from the August data, the manufacturing plant category would still be up 24%, while total nonresidential building would be unchanged from the previous month (instead of the 6% increase). Hotel construction in August jumped 39%, led by the start of a $125 million hotel tower in Las Vegas NV and a $112 million hotel expansion in Seattle WA. The office building category registered a 10% advance, helped by the August start of the $165 million Federal Reserve Bank building in Kansas City MO and a $60 million corporate headquarters in Dallas TX. Store construction in August also climbed 10%; in contrast, warehouse construction for the month fell 17%.
On the institutional side of the nonresidential market, the educational building category grew 3%, as August included the start of eleven high school projects valued each at $30 million or greater. The public building category (detention facilities and courthouses) increased 17%, while both churches and amusement-related projects posted 3% gains. On the negative side, healthcare facilities dropped 27% from an exceptionally strong amount in July; even so, August did include the start of four large hospital projects in these locations: Downey CA ($150 million), Cincinnati OH ($93 million), Toledo OH ($90 million), and Bolingbrook IL ($85 million). New starts for transportation terminals were down 37% in August.
Residential building, at $381.2 billion (annual rate), was up 1% in August. Multifamily construction jumped 21%, aided by the start of several large apartment projects plus the continuation of this year's boom in condominium development. August included fourteen multifamily projects valued at $50 million or greater. Of the fourteen, five were located in New York City, four were located in Florida, two were located in Las Vegas NV, and the remaining three were located Jersey City NJ, Portland OR, and Philadelphia PA. Single family housing in August slipped 3%, retreating from a July that was the strongest month so far this year. Murray stated, "Single family housing remains on track to establish a new record high in 2005, but this market may now be starting to settle back from the robust activity shown earlier in the year." The cost of financing is still supportive -- the 30-year fixed mortgage rate averaged 5.8% in August, up only slightly from the 5.7% for July. "At the same time, the surge in homebuyer demand related to the sharp rise in home prices could now be nearing a peak," Murray noted, "and demand will likely be dampened by faltering consumer confidence in the face of higher energy costs." By region, August showed this pattern for residential building -- the Northeast, up 11%; the West, up 4%; the South Atlantic, up 2%; the Midwest, down 5%; and the South Central, down 7%.
Nonbuilding construction in August was reported at $104.9 billion (annual rate), basically steady with July. The combined total for the public works categories edged up 1%, while the smaller and often volatile electric utility category plunged 48%. Of the public works categories, water supply construction surged 80%, boosted by the start of two large projects in California -- a $198 million aqueduct pipeline in the San Diego area and a $185 million water treatment plant retrofit in Riverside-San Bernardino. River/harbor development work grew 24% in August, helped by the start of a $54 million project to reconstruct bulkheads on the East River in New York City. Growth was also shown for highways and bridges, up 13% in August. Large transportation-related projects reaching the start stage included a $116 million highway reconstruction in Florida and a $108 million bridge replacement in West Virginia. Murray added, "With the August enactment of the new federal transportation bill, highway and bridge construction should see more expansion towards the end of 2005 and into 2006. Reconstruction in the Gulf region will also help the highway and bridge volume in coming months." On the negative side, sewer construction in August fell 59% from July's elevated amount.
The 7% increase for total construction during the first eight months of 2005, compared to last year, was the result of the following performance by major sector -- residential building, up 12%; nonbuilding construction, up 7%; and nonresidential building, down 1%. While nonresidential building over the January-August period was still behind last year, the gap in the year-to-date statistics has narrowed considerably during the most recent three months. By geography, total construction in the January-August period of 2005 reflected this pattern - the South Atlantic, up 10%; the West and South Central, each up 9%; the Northeast, up 8%; and the Midwest, unchanged from last year.
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AUGUST 2005 CONSTRUCTION STARTS
MONTHLY SUMMARY OF CONSTRUCTION STARTS
Prepared by McGraw-Hill Construction Research & Analytics
MONTHLY CONSTRUCTION STARTS
Seasonally Adjusted Annual Rates, In Millions of Dollars
August 2005 July 2005 % Change
Nonresidential Building $181,505 $170,827 +6
Residential Building 381,179 378,390 +1
Nonbuilding Construction 104,921 105,236 --
Total Construction $667,605 $654,453 +2
THE DODGE INDEX
(1996=100, Seasonally Adjusted)
August 2005.................201
July 2005...................197
YEAR-TO-DATE CONSTRUCTION STARTS
Unadjusted Totals, In Millions of Dollars
8 Mos. 2005 8 Mos. 2004 % Change
Nonresidential Building $111,934 $113,392 -1
Residential Building 252,886 225,786 +12
Nonbuilding Construction 69,627 65,194 +7
Total Construction $434,447 $404,372 +7