February Construction Rises 2%

New York, N.Y. – March 18, 2008 – At a seasonally adjusted annual rate of $561.3 billion, new construction starts in February advanced 2% from the previous month, it was reported by McGraw-Hill Construction, a division of The McGraw-Hill Companies.  The gain for total construction reflected a strong performance by nonresidential building, which for the second month in a row was boosted by groundbreaking for several very large projects.  At the same time, nonbuilding construction (public works and electric utilities) fell back from January’s elevated pace, and residential building dropped further as its lengthy correction continues.  For the first two months of 2008, total construction on an unadjusted basis came in at $79.1 billion, down 18% from the same period a year ago.  If residential building is excluded, the value of new construction starts during the first two months of 2008 increased a slight 1% compared to last year.

February’s data lifted the Dodge Index to 119 (2000=100), up from 117 in January.  After weakening substantially during the latter half of 2007, the level of contracting has now shown improvement for two consecutive months.  “Nonresidential building cushioned the housing-led decline for total construction in 2007, and it’s largely responsible for total construction’s modest pickup in early 2008,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.  “However, it’s going to be more difficult for nonresidential building to provide the same support as 2008 goes forward.  Projects that are now reaching the construction start stage had financing arranged prior to the start of the credit crunch last summer.  The credit crunch has since widened in scope, dampening the volume of commercial property transactions, and there are more instances where developers are putting projects on hold until the financial markets stabilize.  In addition, state governments have come under greater fiscal stress, which may lead to the deferral of construction projects in coming months.”

Nonresidential building in February surged 23% to $270.5 billion (annual rate), continuing its rebound from the depressed activity at the end of 2007.  Hotel construction had a particularly strong February, soaring 94% with the main push coming from the start of two massive projects – $1.1 billion for the hotel portion of the Revel Resort Hotel and Casino in Atlantic City NJ, and $1.1 billion for the hotel portion of the Echelon Resort in Las Vegas NV.  In addition to these two massive projects, the hotel category also included three additional projects valued each at $100 million, with two located in Las Vegas NV and one located in Atlanta GA.  Store construction in February jumped 30%, helped by $245 million for retail work at the Revel Resort project in Atlantic City, $150 million for retail work at the Echelon Resort project in Las Vegas, and $100 million for a large retail facility in Yonkers NY.  Warehouse construction, rising 6%, also contributed to February’s strong nonresidential amount.  The office category in February included the start of another huge project at the World Trade Center site in lower Manhattan – the $1.4 billion World Trade Center Tower 2.  However, since January included groundbreaking for the $1.4 billion World Trade Center Tower 3 and the $1.1 billion World Trade Center Tower 4, the pace of new office starts in February was down 23%.  Manufacturing plant construction in February climbed 36%, aided by the start of a $190 million ethanol plant in Iowa.

Heightened contracting was also present across a number of institutional structure types.  Healthcare facilities jumped 58%, as February witnessed the start of four very large hospital projects located in Virginia ($594 million), California ($200 million), Maryland ($150 million), and Pennsylvania ($109 million).  This was reminiscent of the peak activity reported back in 2006, prior to the modest slowdown for large hospital projects that took place in 2007.  Each of the smaller institutional categories registered strong February gains.  This included a 362% hike for public buildings, led by the start of a $1.2 billion federal government facility in Virginia, plus the start of a $146 million military facility in North Carolina.  Amusement-related projects advanced 52%, helped by the start of a $225 million casino in Pittsburgh PA, plus $111 million for the casino portion of the Revel Resort project in Atlantic City and $100 million for the convention center portion of the Echelon Resort in Las Vegas.  Transportation terminals and churches rebounded from a very weak January, climbing 63% and 36% respectively.  School construction was the one institutional structure type that lost momentum in February, slipping 13%, even though February did include the start of a $235 million research center in St. Louis MO.

Nonbuilding construction, at $105.5 billion (annual rate), fell 24% in February after January’s 28% expansion.  Decreased contracting was present across most of the public works project types.  The “miscellaneous” public works category, which includes mass transit and site work, dropped 44% in February compared to a January that included the start of a $1.1 billion subway line extension in New York NY.  Bridge construction was also down sharply, sliding 31% from a January that included the start of a $453 million bridge project in Louisiana.  Additional declines in February were registered by river/harbor development, down 21%; water supply systems, down 19%; and highway construction (the largest public works category), down 5%.  Sewer construction was the only public works category to see growth in February, climbing 17%.  Electric utilities also contributed to February’s nonbuilding decline.  After an exceptionally strong January, new electric utility work retreated 49%, although February did include the start of a $727 million power plant project in Wyoming.  Murray indicated, “Nonbuilding construction can be volatile on a month-to-month basis, subject to the swings caused by the start of individual large projects.  The average pace for nonbuilding construction in January and February, while down 8% from the average for full year 2007, was still 10% above the subdued activity reported in last year’s final two months.”

Residential building in February dropped 3% to $185.3 billion (annual rate).  Single family housing fell an additional 6%, extending its lengthy downturn.  The February weakness for single family housing was widespread geographically, as shown by this regional pattern – the Midwest, down 16%; the South Atlantic, down 7%; the West, down 4%; the Northeast, down 3%; and the South Central, down 2%.  Murray noted, “With each additional month of decline, there’s yet to be any evidence that the single family correction is close to reaching bottom.”  Multifamily housing in February increased 6%, lifted by the start of a $147 million mixed use facility in Boston MA, plus the start of a $62 million condominium project in Parrish FL, a $62 million mixed use facility in Jersey City NJ, and a $62 million independent/ assisted living facility in National City CA.  Multifamily housing is still trending downward – the February pace for multifamily housing in dollar terms was 28% below the monthly average for 2007.

The 18% decline for total construction during the first two months of 2008, compared to last year, was the result of this behavior by major sector – nonresidential building, up 10%; nonbuilding construction, down 14%; and residential building, down 41%.  By geography, the first two months of 2008 showed a greater dollar amount of construction starts in the Northeast, up 19%.  The other four regions showed declines for total construction relative to last year – the West, down 13%; the South Central, down 19%; the South Atlantic, down 31%; and the Midwest, down 34%.

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FEBRUARY 2008 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

	February 2008 January 2008 % Change  Nonresidential Building $270,476 $219,664 +23  Residential Building 185,304 191,982 -3  Nonbuilding Construction  105,535  139,458 -24  Total Construction $561,315 $551,104 +2

The Dodge Index
(2000=100, Seasonally Adjusted)

February 2008............................................................ 119
January 2008.............................................................. 117


YEAR-TO-DATE CONSTRUCTION STARTS
Unadjusted Totals, In Millions of Dollars

	2 Mos. 2008 2 Mos. 2007 % Change  Nonresidential Building $36,261 $33,010 +10  Residential Building 25,627 43,226 -41  Nonbuilding Construction   17,256  20,134 -14  Total Construction $79,144 $96,370 -18